While most types of mortgage loans require at least a 3% down payment, there are some loans you can get with no money down.
This article takes a look at the types of home loans that provide 100% financing.
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6 Home Loans that Provide 100% financing
- USDA Loans
- VA Loans
- HomeBuyers Choice Mortgage
- FHA Loans (with Chenoa Fund)
- Conventional HomeReady Loans (with Chenoa Fund)
- Good Neighbor Next Door Program ($100 down)
100% Financing Home Loans
The U.S. Department of Agriculture created USDA loans to help low-to-median income borrowers purchase a home in a rural location. They require a 640 credit score, offer 100% financing, and have a low mortgage insurance premium (0.35%).
Some of the USDA-eligible rural locations are actually suburban areas within proximity to metro areas. In fact, the USDA home loans are available in 97% of the geographic United States. Even better, the USDA has postponed the schedule to update the map every year since 2013. Therefore, there is a chance that the home deep in the suburbs could be in an eligible location.
- Income must be below 115% of the Area Median Income (AMI)
- Minimum 640 credit score
- 1% upfront MIP fee
- 50% debt-to-income ratio
- The home must be in an eligible location
- For primary residences only
- Mortgage insurance required
VA loans are only available to active servicepersons, veterans, and their spouses. They come with 100% financing and don’t require mortgage insurance.
In addition to not needing a down payment, they have low-interest rates and closing costs. VA loans are the only type of mortgage that doesn’t require mortgage insurance with a loan-to-value ratio of 100%. The VA loan credit requirements will vary by lender but is typically between 580 and 620.
VA Loan Requirements
- 580-620 minimum credit score (depending on the lender)
- 50% Maximum debt-to-income ratios
- For primary residence only
- 24 month waiting period after a bankruptcy or foreclosure
HomeBuyers Choice Mortgage
The Navy Federal Credit Union HomeBuyers Choice Mortgage is similar to VA loans. They include 100% financing for veterans, no mortgage insurance premiums (MIP), and the ability to roll the funding fee into the loan for a marginal increase in the mortgage rate.
Navy Federal offers multiple home loan types, including FHA and VA loans. However, it has its own selection of zero down home loans that have several similarities with the VA-backed mortgage program.
- Veterans and active servicepersons of the military (Air Force, Army, Coast Guard, Marine Corps, and Navy)
- Some civilian employees of the military
- Some civilian employees of the U.S. Department of Defense
- Family members of military personnel
The NFCU also offers another 100% financing mortgage called the Military Choice Mortgage. It exclusively targets veterans and active servicepersons of the military. Unlike the HomeBuyers Choice (HC) Mortgage, the Military Choice (MC) loan can finance both primary and second homes.
Chenoa Fund with the FHA Loan Program
The Chenoa Fund is a grant from CBC Mortgage Agency that provides 3.5% in down payment assistance for low-median income families with a household income of less than 115% of the area median income.
The assistance comes from a second mortgage in combination with an FHA loan. Borrowers whose income is below the median income will have their second mortgage payments forgiven after making 36 consecutive months of on-time payments.
Chenoa Fund FHA Requirements
- 620 credit score
- Mortgage insurance required
- Borrowers who make less than 115% of HUD’s Area Median Income (AMI) assistance is forgiven
- Borrowers making more than 115% of the AMI have an option to repay the debt in 10 years interest-free
- Depending on your credit score, homebuyer education may be required
Chenoa Fund with the HomeReady Program
You can use the Chenoa Fund with 97% LTV conventional loans. Since Chenoa Funds offer 3.5% in down payment assistance and HomeReady loans require 3% down you can use the extra 0.5% to help pay closing costs.
Chenoa Fund HomeReady Requirements
- Minimum 640 credit score
- Private mortgage insurance (PMI) is required
- No income limits in low-income census tracts, 100% of area median income (AMI) for all other properties
- You don’t have to be a first-time homebuyer
- Homebuyer education course required
Good Neighbor Next Door Program
The good neighbor next door (GNND) program is for eligible full-time law enforcement officers, teachers, firefighters, and emergency responders that require just a $100 down payment. The GNND program is used in conjunction with FHA loans that require just $100 down.
Good Neighbor Next Door Requirements
- Must be law enforcement, teachers, firefighters, and emergency responders to be eligible
- $100 down payment
- 50% maximum debt-to-income ratio
- No income limits
- Maximum loan limit in line with FHA limits
Down Payment Assistance, Grants, & Gift Funds
Using Gift Funds for the Down Payment
For most mortgage programs, the down payment can be a gift from a friend or family member. If you can find a donor, you could get a mortgage without needing a down payment.
While the FHA allows gift funds from a wide array of donors such as family members, charitable organizations, religious institutions, employers, or state-run down payment-assistance programs, Fannie Mae only allows gifts from relatives (by blood or marriage) on its HomeReady program.
First-Time Homebuyer Assistance
Various f are offered locally that provide down payment and closing cost assistance. Check for programs local to you by visiting your local county website.
Home Loans Requiring a Low Down Payment
Government-backed home loans dominate the selection of no down payment mortgages, but conventional mortgages are rising to the occasion with attractive low down payment requirements.
Popular Low Money Down Mortgages
- FHA Loans – FHA loans require just a 3.5% down payment with a 580 credit score or higher. The down payment can also be a gift from a friend or family member.
- Conventional 97 Program – The conventional 97 loan program from Fannie Mae requires just 3% down with a 680 credit score.
- Home Possible and HomeReady Loans – Fannie Mae and Freddie Mac created the Home Possible and HomeReady loan programs for low-income first-time buyers that meet the income limits and have a 620 credit score can qualify.
Why is 100% financing not a standard offering?
Mortgage insurance companies have a limit to the risk they can assume. To offer 100% financing, lenders typically have to look towards the government to provide a guarantee. This is why the home loan programs that finance 100% of the purchase price are government loans.
Not everyone can come up with a 20% down payment. And that’s where private mortgage insurance (PMI) comes in. For most loans with a low down payment that is less than 20%, it is a requirement that the borrower has to pay a monthly PMI premium.
Upfront Costs Associated with Getting a Mortgage
Closing costs are fees charged by lenders for processing and issuing a mortgage loan. On average, you can expect to pay between 2% and 5% of the loan amount. The seller can usually pay up to 6% of your closing costs.
Upfront Mortgage Insurance
The mortgage insurance premium (MIP) is required on all government home loans except VA loans. The annual MIP fee is included in your monthly payment. There is also an upfront MIP fee of 1% for USDA loans and 1.75% for FHA loans.
Mortgage lenders require the home appraisal to determine the market value of the home. The average home appraisal costs between $400 and $600, depending on the home’s square footage.
It’s highly recommended you get a home inspection before closing on a home to ensure there are no major issues. You can also negotiate with the seller to make some of the repairs. On average, a home inspection is between $300 and $500.