Saving up for a down payment is a huge hurdle to homeownership, especially when you’re juggling other expenses like rent or student loans. However, while putting 20% down is often the rule of thumb, you might not need a down payment of this size. In fact, some mortgage options don’t require a down payment at all.
If you’re wondering how to buy a house with no money down, here’s what you should know.
Can you buy a house with no money down?
Yes, it’s possible to put no money down on a house — depending on your situation, where you’re buying a home and the type of mortgage you get. This can be a relief if you’re struggling to set aside cash for a down payment.
However, to qualify for a no-down-payment mortgage, you’ll need to meet certain criteria. Specifically, you might need to purchase a home in an eligible rural area to get approved for a loan backed by the U.S. Department of Agriculture (USDA). Or you could have to show you’re affiliated with the U.S. military to qualify for a loan backed by the Department of Veterans Affairs (VA).
Low-down-payment loans also exist. For instance, mortgages insured by the Federal Housing Administration (FHA) only require a down payment of 3.5% for borrowers with credit scores of 580 or higher.
Some mortgage lenders also allow you to put just 3% down on conventional loans — though having a down payment of less than 20% on a conventional mortgage usually means you’ll have to pay for private mortgage insurance (PMI).
Ultimately, there’s no one right down payment amount for everyone. “The amount of money you should spend on a down payment depends on your situation,” says Ashley Moore, the community lending manager at JPMorgan Chase & Co. “Putting less than 20% down on your home may be smart if you have a good household income but haven’t had time to save for a down payment, or if a large down payment is the only thing preventing you from buying a home or will completely deplete your savings.”
Tip: Your down payment will impact the amount of your mortgage payments. You can use our home affordability calculator to see how your down payment amount could affect your monthly housing expenses.
Mortgage options with no down payment
Two government-backed loan programs are available that don’t require a down payment:
USDA loans
USDA loans are offered through private banks and credit unions and don’t require a down payment. However, these mortgages are only available to borrowers who are buying a home in an eligible rural area. Borrowers must also meet income requirements and pay two forms of mortgage insurance — an upfront premium and a monthly premium until the loan is paid off.
Because these loans are backed by the federal government and therefore present less risk for lenders, they can be easier to qualify for compared to conventional loans.
A few types of USDA loans are available:
- Section 502 Guaranteed Loan: Private banks and credit unions fund these home loans, while the USDA guarantees a portion of them. Borrowers must buy the home in an eligible area and pass income requirements. They’ll also pay a mortgage insurance premium both at closing and monthly over the life of the loan.
- Section 502 Direct Loan: The USDA funds these loans directly and sets the interest rate on them as well. They’re designed for low- and very-low-income applicants purchasing homes in eligible rural areas.
- Multifamily Housing: The USDA created multifamily loans to help borrowers improve their rental properties and provide rent subsidies for low-income tenants. Several types of multifamily housing loans are available.
VA loans
Current U.S. military service members, veterans and surviving spouses might qualify for a VA loan through a private lender. Because these loans are backed by a federal agency, they typically offer competitive interest rates and come with flexible eligibility requirements.
VA loans also don’t come with mortgage insurance, though they do require a funding fee.
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Mortgage options with little money down
If you have some money saved for a down payment, you could also explore mortgages with low down payment requirements. These include mortgages insured by FHA loans as well as certain conventional loans through Fannie Mae and Freddie Mac programs.
FHA loans
FHA loans come with down payments as low as 3.5% for borrowers with credit scores of 580 or higher. If your credit score is between 500 and 579, you’ll need to make a down payment of at least 10%.
In addition to low down payments, FHA loans come with competitive rates and relatively low fees. However, borrowers must pay upfront and annual mortgage insurance premiums (MIPs), which vary depending on your repayment term.
Conventional loans
A conventional loan is any mortgage that’s not backed by a government agency. Lenders can originate these loans and sell them to Fannie Mae and Freddie Mac, which are government-sponsored entities that guarantee the majority of U.S. mortgages.
Conventional loans usually have higher credit score and debt-to-income (DTI) ratio standards compared to mortgages insured by government agencies. But some conventional loans — including Fannie Mae’s HomeReady as well as Freddie Mac’s Home Possible and HomeOne — have low down payment requirements of just 3%. Eligibility criteria vary, and you might have to be a low-income or first-time homebuyer to qualify.
Also remember that putting less than 20% down on a conventional mortgage usually means you’ll have to pay for PMI.
Pros and cons of buying a house with no money down
Pros
- You won’t need to come up with a large lump sum for a down payment.
- If you have money saved, you can use it to improve or repair your new home or purchase furnishings.
- Certain home loans might not require PMI.
Cons
- You’ll have to borrow more money, which means you’ll have larger monthly payments.
- Some no-down-payment loans have strict requirements, such as buying a home in a rural area or showing military affiliation.
- Some loans might require PMI.
Frequently asked questions (FAQs)
Qualifying USDA or VA home loan borrowers won’t be required to make a down payment. Other mortgages, such as FHA loans and some conventional loans, also have low down payment requirements.
While the USDA and VA don’t set specific credit score requirements, the lenders that offer USDA and VA loans usually have their own eligibility criteria. To qualify for a USDA, you’ll generally need a credit score of 640. For a VA loan, the minimum score required is typically 580. Note that these minimums can vary by lender.
While you can get a home with no money down, there are additional costs to keep in mind. For example, you’ll likely need to pay closing costs. These are typically 2% to 6% of your total loan amount, though certain programs offer lower closing costs. For instance, VA loans often have fewer closing costs compared to other mortgages.
