Guide to no-down payment mortgages: Am I eligible?

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If you qualify for a no-down payment mortgage, you could get a loan for the full purchase price of a home, with no money down upfront. Here’s what you need to know.

What is a no-down payment mortgage?

A no-down payment mortgage is a home loan that allows you to finance 100 percent of the home’s purchase price without having to put any money down at closing. Zero-down mortgages can be particularly beneficial for those buying a home for the first time or with limited savings.

No money down mortgage options

The easiest way to avoid a down payment is to qualify for either a VA loan or USDA loan:

VA loans

If you’re a military service member, veteran or eligible surviving spouse, you might qualify for a VA loan guaranteed by the U.S. Department of Veterans Affairs (VA) with no money down. Unlike a conventional loan, there’s no mortgage insurance requirement for a no-down payment VA loan. However, you do have to pay an upfront funding fee, which can be rolled into the mortgage. This fee ranges from 1.25 percent to 3.3 percent of the loan amount. You can reduce the funding fee by making a down payment.

USDA loans

The U.S. Department of Agriculture (USDA) guarantees USDA home loans for lower- to moderate-income buyers purchasing homes in specially-defined rural areas. These loans don’t require a down payment, but there’s an upfront guarantee fee of 1 percent of the principal loan amount, as well as an annual fee of 0.35 percent, which you can roll into the cost of the mortgage.

Low-down payment mortgage options

If you aren’t eligible for a true no-money down home loan, you might still be able to buy a home with the next best thing: a low-down payment mortgage.

3 percent conventional loans

Fannie Mae and Freddie Mac — the two government-sponsored enterprises underpinning mortgages in the U.S. — back several 3 percent down conventional loan programs:

• Conventional 97
• HomeReady
• Home Possible
• HomeOne

Each of these requires just 3 percent down, but also private mortgage insurance (PMI). The cost of the premiums varies by program and the individual borrower.

FHA loans

Insured by the Federal Housing Administration (FHA), an FHA loan requires only 3.5 percent down with a credit score as low as 580. (If you have a credit score between 500 and 579, you’ll need a higher down payment of 10 percent.) Similar to PMI, you’ll pay FHA mortgage insurance with an FHA loan. However, unlike conventional PMI, you’ll pay FHA premiums for as long as you have the mortgage, in most cases.

1 percent down mortgage programs

Some mortgage lenders offer conventional mortgage programs with only 1 percent down. This includes Rocket Mortgage’s ONE+ program and United Wholesale Mortgage’s Conventional 1% Down program. For these programs, the lender pays 2 percent of the required 3 percent down payment for a HomeReady or Home Possible loan — or up to a maximum contribution that varies by lender and loan size — and you only need to provide the remaining 1 percent.

Good Neighbor Next Door

The Good Neighbor Next Door (GNND) program is for borrowers who work in select public service professions — teachers, firefighters, law enforcement and emergency medical technicians — and plan to buy a home in a qualifying area. Sponsored by the U.S. Department of Housing and Urban Development (HUD), the program provides a discount of up to 50 percent on a home with a down payment of just $100.

Pros and cons of a no-down payment mortgage

The ability to buy a home with no or very little money down can be appealing, but there are drawbacks, too.

Should you get a no-down payment mortgage?

Deciding whether to go for a no-down payment mortgage depends largely on your financial circumstances and goals. Here are a couple of scenarios when a zero-down mortgage might be a good idea:

• If you don’t have a lot of cash
• If you can afford to pay higher monthly payments
• If you plan to stay in the home long-term
• If your rent becomes unaffordable
• If you need or want more space (such as for a growing family)

FAQ on no-down payment mortgages

• What credit score do I need to buy a house with no money down?

  The Department of Veteran Affairs and the U.S. Department of Agriculture don’t set a minimum credit score requirement for VA and USDA loans, respectively. However, most lenders offering these loans do, and they’d want them to be at least in the “fair” range: 620 for VA loans, 640 for USDA loans.
  

• What are my alternatives if I don’t qualify for a low money down loan?

  If you don’t qualify for a no- or low-down payment mortgage, a down payment assistance program might help. These programs are typically offered to first-time or repeat homebuyers within certain income thresholds based on location, and can often be applied to both the down payment and closing costs.