Buying a house is an exciting milestone in life. However, saving up enough for a down payment can be challenging, especially for first-time homebuyers. The standard 20% down payment on a median-priced home is around $40,000 – not a manageable number to come up with! Luckily, there are ways to buy a house with little to no money down if you meet specific qualifications. While 100% financing isn’t as standard as it was during the housing boom in the early 2000s, some loan programs still make it possible to buy a home without bringing cash to closing.
This guide will walk you through different low and no-down payment mortgage options, steps to take, and costs to save for when buying a house with no money. Understanding the home buying process and loan qualifications allows you to realize your dream of homeownership – even with limited funds.
Is It Possible to Buy a House With No Money Down?
The short answer is yes; it is possible in certain circumstances! While you typically need anywhere from 3.5% to 20% as a down payment on a home, there are mortgage options that allow qualified buyers to purchase with less cash upfront.
Here are some of the most common ways to buy a house with little to no money down:
- V.A. Loans: V.A. loans are guaranteed by the Department of Veterans Affairs and require 0% down for eligible veterans, active-duty military, and surviving spouses.
- USDA Loans: USDA loans are backed by the U.S. Department of Agriculture and are aimed at low-to-moderate-income buyers in rural areas. No down payment is required.
- FHA Loans: FHA loans only need 3.5% down and are a popular option for first-time homebuyers.
- Piggyback Loans: Also known as 80/10/10 loans, these “piggyback” a first and second mortgage together to cover the down payment.
- Seller Financing: Sometimes, sellers may agree to directly finance a portion of the home purchase.
- Shared Equity Programs: Local down payment assistance programs exist to help subsidize the cost.
- Gifts: You can use your family’s gifted money toward your down payment.
As you can see, options are out there! Each program has specific eligibility requirements and advantages that we’ll discuss throughout this guide.
Step 1: Determine Your Budget and Savings
While buying a home with minimal upfront cash is possible, you still need to have some savings and assess what you can afford. Mortgage lenders will look at these critical factors:
Down Payment Amount: Low down payment mortgage programs require at least 3% to 5% down. Save up enough for:
- Down payment funds
- Closing costs typically run 2% to 5% of the purchase price.
Credit Score: Most no-money-down programs require a minimum credit score in the mid-600s. Work to boost your credit before applying.
Debt-to-Income Ratio: Lenders look at your total debt payments (including the new mortgage) versus your gross monthly income. This ratio typically needs to be below 50%.
Employment History: Steady income from your job must be verified to qualify. Have at least two years of stable employment.
Monthly Income: Your residual income after paying debts still needs to be adequate to cover regular housing expenses.
By checking your credit, savings, income, and debt ahead of time, you can set realistic expectations for the homebuying process.
Step 2: Choose the Best Low or No Down Payment Mortgage
Once you understand your budget and savings abilities, it’s time to choose the right mortgage loan. Here are the most common low and no-down payment options:
V.A. Loans
VA loans are a fantastic program for military members and spouses. When you qualify, no down payment is required at all.
Pros:
- Zero down payment for veterans, active duty, and surviving spouses
- No monthly mortgage insurance is required
- Competitive interest rates
- It can be used for new construction
Cons:
- For primary residences only
- A funding fee of 2% – 3% is required
- Primarily limited to veterans and military spouses
Overall, it’s hard to beat V.A. loans if you served!
USDA Loans
Like V.A. loans, USDA rural housing loans allow qualified borrowers to put zero down. You need to purchase in an eligible rural location.
Pros:
- 100% financing available
- Low annual mortgage insurance of 0.35%
- Fixed low-interest rates
- Low-income borrowers welcome
Cons:
- For rural locations only
- Moderate income limits by area
- Upfront guarantee fee of 1%
- Property must meet USDA habits and standards
USDA loans open up affordable homebuying opportunities for rural buyers without requiring a down payment.
FHA Loans
FHA loans are a top choice for first-time homebuyers, allowing down payments as low as 3.5%.
Pros:
- Down payments start at just 3.5%
- Lenient credit score requirements (580 min)
- Low minimum down payment
- Available for primary residences
Cons:
- Upfront mortgage insurance premium of 1.75%
- Monthly mortgage insurance required
- Lower max loan limits than conventional loans
- Must follow FHA property standards
FHA loans are an excellent low-down payment mortgage option for buyers with marginal credit or limited savings.
80/10/10 Piggyback Loans
With an 80/10/10 or piggyback loan, you get two mortgages together to cover the down payment. This avoids private mortgage insurance (PMI).
Pros:
- Total financing, no down payment needed
- No monthly PMI payments
- Separate second lien means more accessible financing
Cons:
- Higher interest rates than other loans
- Closing costs and fees on two mortgages
- More complicated to qualify for than a single mortgage
By leveraging a piggyback loan, you can buy a home without a down payment while avoiding PMI.
Seller Financing
In some cases, sellers may directly agree to finance up to 90% of the purchase price in lieu of a down payment.
Pros:
- Low or no down payment options
- It may have better terms than bank financing
- Personalized lending agreements
Cons:
- Less availability than traditional loans
- Typically, higher interest rates
- Only an option when the seller agrees
If both parties agree, seller financing brings creative opportunities to cover your down payment.
Shared Equity Programs
Local down payment assistance programs exist to subsidize the down payment cost as a shared equity loan or grant.
Pros:
- Little to no cash is needed for a down payment
- Favorable terms and conditions
- It can be combined with other loan types
Cons:
- Limited availability by location
- Income and home price limits apply
- Additional program guidelines and approvals
For eligible buyers, down payment assistance programs provide the extra funds to cover homebuying expenses and required reserves.
Exploring these and other 100% financing mortgages opens up possibilities for buying a home without access to large amounts of cash. Compare interest rates, terms, and costs to find the best loan option.
Step 3: Improve Your Credit Score
While buying a house with bad credit is possible, the higher your score, the more affordable it will be. Most zero-down and low-down payment programs require minimum credit scores between 580 and 640.
Here are some tips for boosting your credit before applying for a mortgage:
- Pay down balances: Lowering credit utilization helps. Try to get below 30%.
- Dispute errors: Fix any mistakes on your credit reports.
- Become an authorized user: Ask to get added as an authorized user on a spouse or family member’s account. This gives your credit an immediate positive boost from their excellent payment history.
- Don’t apply for new credit: New inquiries before applying for a mortgage loan can lower your score.
- Pay on time: Set up automatic payments on all accounts to avoid missed payments. Check credit card and loan terms to know each due date.
- Monitor your credit: Get copies of your credit reports and check your scores a few months before applying for a mortgage. This gives you time to correct any issues.
Bringing up your credit score can help you qualify for the best interest rates and loan terms when you have minimal savings for a down payment.
Step 4: Choose the Right Home and Mortgage Amount
With little money down, choosing an affordable home and mortgage amount is critical. When you put less cash in upfront, you rely more on your income to cover the monthly mortgage payments. Follow these tips:
- Know your budget: Factor in mortgage payments, home insurance, property taxes, and maintenance costs .
- Get pre-approved first: This helps you know the maximum home loan amount you qualify for based on your income, existing debts, and credit. Stick to a price range at or below the pre-approval letter amount.
- Mind the debt-to-income ratio: Lenders look closely at your total monthly debt payments (including the new mortgage payment) versus your gross monthly income. Keep this percentage around 50% or lower so you don’t get overextended.
- Look for lower-cost homes: Opt for more affordable homes requiring cosmetic repairs rather than major structural updates. This helps keep mortgage and renovation costs down.
- Prioritize must-haves: With a smaller budget, decide what essential features, like location, number of bedrooms and bathrooms, garage space, etc. Let the other wishes go for now.
- Consider condos or townhomes: Attached housing often costs significantly less than single-family homes. HOA fees also cover exterior maintenance.
- Factor in closing costs: Remember to budget for closing costs, which can run from 2% to 5% of the total purchase price.
Taking these steps helps first-time buyers on a budget stay comfortably within their means when purchasing a home with minimal cash down. Don’t overextend yourself to buy a house now. Be patient, and the right affordable property will come along.
Step 5: Apply for Down Payment Assistance Programs
Down payment assistance (DPA) programs provide grants, loans, or secondary financing to cover your required down payment. This subsidizes the cost if you can’t fund it on your own.
Here are some tips for utilizing down payment programs:
- Check state and local options: Start with programs offered in your city, county, or state. Eligibility requirements and subsidies vary greatly depending on location.
- Look for first-time buyer programs: Many programs specifically aim to help first-time buyers manage the high market costs of nonprofit organizations. Local housing nonprofits and community development groups often manage down payment assistance funds.
- Please inquire with your lender: Ask potential mortgage lenders what DPA programs they work with and can connect you to.
- Save for your contribution: Most DPA programs still require a small contribution from the buyer, typically 1% to 3% of the purchase price. Factor this in.
- Apply in advance: Getting qualified and securing funds through a down payment program takes time. Plan at least a few months lead time before your expected closing date.
Down payment assistance opens doors for buyers who can’t save enough to cover the standard 3% to 20% down before purchasing. Take advantage of these programs to make homeownership attainable.
Step 6: Explore Gift Fund Options
One intelligent and creative way to fund a mortgage down payment is through gift funds. The giver can be a relative, future spouse, nonprofit, or employer. Here are some tips on using gift funds:
- Immediate family gifts are common – Parents often help kids with the down payment. Grandparents, siblings, and extended family can also participate.
- Get gift letters to document – The lender will require signed letters proving the money doesn’t need to be repaid.
- Gifts can cover all cash needed – 100% of your down payment and closing costs can come from gifts if the giver can document the funds.
- Gifts can supplement your savings – Combining gifts with your cash makes saving easier.
- Understand tax implications – Gift amounts over $16,000/year may require reporting. Gifts aren’t taxable to the recipient, though.
- Employer gifts happen, too – Some employers offer financial help for workers to purchase homes.
Gifting from family or other sources provides a simple way to create cash for closing when your savings don’t cut it. Every little bit helps when buying a house with minimal funds house !
Step 7: Build Your Home Buying Team
Moving forward with a 0 down mortgage takes careful planning and reliance on the right professionals. Here are key players to have on your team:
Real Estate Agent – An experienced agent guides you through buying and negotiates purchase terms. Local expertise helps, too.
Mortgage Lender – A lender familiar with low down payment loans can educate you on options and guide the application. Get pre-approved before house hunting.
Home Inspector – Don’t waive the inspection to get your offer accepted. Inspectors identify issues to negotiate repairs for or avoid.
Closing Agent or Attorney – Real estate attorneys or title company representatives ensure all documents are complete and fees are paid at closing.
Service Professionals – Line up quotes from electricians, roofers, plumbers, and other services you may need for repairs.
Leaning on the experience of industry professionals ensures you find the right home house , get fully approved for financing, and limit surprises along the way.
Step 8: Make a Strong Offer
Making an offer on a home, you want is exciting but stressful when getting a seller to accept a low or no down payment mortgage. Here are some tips for making your offer more appealing:
- Highlight pre-approval terms – Prove you are qualified and the loan is secure with a pre-approval letter from a reputable lender.
- Agree to appraisal gaps – Offer to pay out of pocket if the appraisal is lower than the purchase price.
- Keep contingencies simple – Don’t load up the offer with many contingencies. And don’t ask sellers to pay for anything extra.
- Send proof of funds – Provide bank statements or gift letters to substantiate you have cash for closing costs.
- Act quickly – Be ready to view homes and make offers promptly in competitive markets. Don’t drag your feet.
- Improve appeal with a cover letter – Write a personal letter to introduce yourself and share why you love the home.
- Get creative – If the seller wants a quick closing or rent-back period, try accommodating it.
With the correct terms and creative thinking house , you can still win over sellers and negotiate successfully – even when offering 100% financing.
Step 9: Be Prepared for Mortgage Closing
The closing process moves quickly once your offer is accepted. Stay organized and prepared with these steps:
- Get a handle on closing fees – Ask for an estimate of title fees, taxes, and recording charges, and prepay several weeks before closing. This helps avoid surprises.
- Monitor for underwriting approval – Stay in touch with your loan officer throughout underwriting. Provide any needed documents quickly to prevent delays.
- Complete your final walkthrough – Inspect before closing to ensure repairs are completed and the home is ready.
- Review closing docs beforehand – Ask for copies a few days before closing to read through all sales contracts, terms, and fee breakdowns.
- Bring proper I.D. and funds – Have your photo I.D., wire transfer amounts, certified checks, and any other items the lender requests available on closing day.
- Double-check everything – At the closing appointment, follow along carefully as the documents are reviewed, and don’t be afraid to ask questions.
Being organized and prepared helps the closing and funding process go smoothly so you can pick up your keys and move into your new home!
Step 10: Plan for Closing Costs and Upfront Fees
While buying a house with minimal cash is possible, you still need funds available for closing fees and upfront costs. Here are estimates of what to expect:
Closing Costs – Plan for 2% to 5% of the purchase price. This can include title fees, recording fees, loan origination costs, appraisals, inspections, etc. Shop lenders to get the best rates and compare fees. Seller credits may help offset some expenses, too.
Down payment – Around 3% to 5%, or as your loan program requires. Down payment assistance programs can provide these funds. V.A. loans allow 0% down.
Earnest money deposit: 1% to 3% of the purchase price to show you are serious about buying the home. This deposit applies to your down payment.
Home inspection costs – $300 to $500 for a full inspection by a licensed home inspector. Don’t skip this critical step.
Home insurance – Shop plans and get quotes. Homeowners insurance costs around $800 to $2,000 annually, depending on property value, location, and coverage.
Property taxes – Prorated for the remainder of the year at closing. Budget 1% to 3% of the home value annually.
Mortgage insurance – Required on most low down payment loans. Between 0.35% to 1.75% of the loan amount as an upfront premium at closing, plus monthly payments.
While daunting, understanding these fees helps you financially prepare and budget for a successful closing when buying a home with minimal funds.
FAQs
What is the lowest down payment I can make?
The lowest down payments are around 3% to 3.5% on FHA and some conventional loans. V.A. and USDA loans technically allow 0% down for those who qualify.
What credit score do I need for a no-money-down mortgage?
Expect a minimum score of around 620 for the most competitive rates and options. Each mortgage program has its own requirements, with scores ranging from 580 to 700.
Can I use gifts for my entire down payment?
Yes, 100% of your down payment and closing costs can come from gift funds, provided the giver writes a letter confirming they don’t need to be repaid.
Do lenders allow personal loans or borrowing for down payments?
No, lenders want your down payment from your savings or gifts. Never borrow money for a down payment that you have to repay.
Can closing costs be included in the mortgage loan?
Yes! In most cases, you can finance closing costs by rolling them into the mortgage amount if you don’t have cash to pay them upfront.
Do I repay down payment assistance programs?
It depends on the type and terms of the program. Some offer grants you keep, while others provide second loans you repay monthly, like a mortgage. Ask a lender for specifics in your area.
What tips do you have for first-time home buyers?
First-timers should get pre-approved house , take first-time buyer classes, get a home inspection, and build a team of real estate and lending professionals. Saving some money for inevitable repairs is also a good idea.
In Conclusion
Buying a house with no money down is achievable with the proper preparation and mortgage financing. By exploring low and no-down payment programs, improving your credit, working with down payment assistance resources, and assembling a good team, you can be well on your way to owning a home, even with limited savings.While a zero-down mortgage isn’t for everyone, it opens doors for qualified buyers who don’t have tens of thousands sitting in the bank but are ready to achieve the dream of homeownership, especially in these areas— THESE ARE THE CHEAPEST PLACES IN THE UK TO BUY A HOUSE. You’ll need to be practical by choosing an affordable home, mortgage amount, and monthly payments. But with careful planning and intelligent decision-making, you can move into your own home sooner than you may think.
