How to Buy a House with No Money Down

no down payment mortgage programs

If you’re interested in buying a house with no money down, you may be in luck.

There are some mortgage programs that do not require a down payment.

In this article, we’ll cover the different types of home loans that are available with little to no money down.

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No Money Down Mortgage Programs

  • USDA loans
  • VA loans
  • Hard money loans (investment properties)


Low Down Payment Mortgage Programs

  • FHA loans (3.5% down)
  • Conventional 97 loan (3% down)
  • Freddie Mac Home Possible loan (3% down)
  • Fannie Mae HomeReady loan (3% down)
  • Piggyback loan (10% down)


Home Loans Requiring No Money Down

USDA Loans (No down payment)

The U.S. Department of Agriculture created the USDA home loan program to help low-income families become homeowners in rural areas of the country. 

Besides not requiring any money down, USDA loans have the lowest mortgage insurance premium (MIP) is much lower than any other type of mortgage available. Just 0.35% compared to 0.85% for FHA loans.

When you think rural, you think farms and un-development land. However, the USDA eligibility map shows that most areas outside of the major cities are considered a rural area.

USDA Loan Requirements

  • 640 minimum credit score
  • No down payment
  • 50% maximum debt-to-income ratio
  • Income below 115% of the median income in area
  • The property must be located in a USDA eligible location


VA Loans (No Down Payment)

If you’re a Veteran, you may be eligible for a VA mortgage. VA loans offer 100% financing, so you need no money down.

VA does not require mortgage insurance, saving homeowners thousands of dollars a year. These loans are the cheapest mortgage program available today.

Other fees involved with these mortgages are the VA funding fee. Because VA home loans don’t require mortgage insurance, they charge a one-time funding fee to help the program be self-sufficient. The fee is 2.15% of the loan amount. On a $200,000 mortgage, the funding fee will be $4,300 and can be financed into the loan.

The credit requirements for VA loans will depend on the lender. Most lenders require a 620 credit score, but lower VA minimum credit requirements can be found with smaller lenders.

You will need a VA certificate of eligibility to show you are eligible. You can visit the Department of Veterans Affairs website.

VA Loan Requirements

  • 620 credit score
  • VA Certificate of eligibility
  • No down payment
  • No mortgage insurance


Hard Money Loans (No Money Down for Investment Properties)

If you’re a real estate investor you can buy an investment property to fix and flip with no money down using a hard money loan.

Hard money loans are interest-only loans that provide up to 75% of the after repaired value (ARV) of an investment property. Investors choose to work with hard money lenders to remain cash liquid.

The interest rate is higher than other types of home loans, usually between 9%-15%. However, the high mortgage rate shouldn’t scare you off because they are short term loans which are typically paid back within 6-9 months.

Hard Money Loan Benefits

  • Interest-only monthly payments
  • Finance both the purchase and repairs
  • Short-term loan (6-12 months)
  • Funding in days
  • No money needed up-front


Home Loans that Allow 100% of the Down Payment to be a Gift

If you are using gift funds for the down payment your lender will require a gift letter stating that the money is not a loan and does not need to be repaid. The funds will also need to be tracked back to the individual using bank statements.

If you have a friend or relative that is willing to gift you the down payment, these home loans allow 100% of the down payment to be a gift.

FHA Loans (3.5% Down Payment)

FHA loans were created by the Federal Housing Administration to increase homeownership in America. They are very popular among first-time homebuyers because of their low credit score and down payment requirements.

The FHA does not issue the loans, they insure the mortgage in the event a borrower defaults on their loan, reducing the risk of loss for the lender allowing them to loosen their loan requirements.

Not only does the government-backed FHA loan program require just 3.5% down, you only need a 580 credit score to qualify. If you have at least a 500 credit score, you can qualify with a 10% down payment.

FHA loan credit requirements

FHA Loan Requirements

  • 3.5% down with a 580 credit score
  • 10% down with a 500-579 score
  • Maximum debt-to-income ratio of 50%
  • Gift letter needed if using gift funds
  • Two years of tax returns and W2’s
  • Must be for a primary residence only
  • 24 month waiting period after bankruptcy/foreclosure

FHA Loan Benefits

  • Low 3.5 percent down payment
  • Low interest rates
  • Gift funds may be used for 100% of the down payment
  • 500 credit score may be approved
  • Easy refinance with FHA streamline
  • High debt-to-income ratios accepted
  • Are assumable
  • Easiest mortgage to qualify for
  • Sellers can pay up to 6% of the closing costs


Conventional 97 Loan (3% Down Payment)

Conventional loans typically require between 5% – 20% down. However, in an effort to compete with FHA loans Fannie Mae created their own low downpayment home loan, the conventional 97 loan.

The conventional 97 loan requires just a 3% down payment, and like FHA loans, allow 100% of the down payment to be a gift.

Conventional 97 Loan Requirements

  • Minimum 680 credit score
  • 43% maximum debt-to-income ratio
  • Gift letter needed if using gift funds
  • Two years of tax returns and W2’s
  • 36 month waiting period after bankruptcy/foreclosure


Conventional 97 Loan Benefits

  • No front-end mortgage insurance required
  • 100% of the down payment can be a gift
  • 3% of closing costs can be paid by the seller
  • PMI automatically cancels when the loan-to-value ratio reaches 78%
  • 3% down, which is even lower than an FHA loan.
  • A friend or family member can gift the down payment to the borrower


Freddie Mac Home Possible loan (3% down)

The Freddie Mac Home Possible Loan was created by Freddie Mac to help low-income borrowers with its low 3% down payment.

To qualify you must have at least a 620 credit score and your income cannot exceed 80% of the median income in your area.

Fannie Mae Home Ready Loan (3% down)

Fannie Mae has their own 3% down payment program, the Home Ready Loan Program. While both the Home Ready and HomePossible loan programs have many similarities there are some key differences.

The Home Possible program lets you use sweat equity to pay for your closing costs and down payment. Home Ready does not.

Key Features of Home Ready & Home Possible Loans

  • Minimum 620 credit score
  • 3% down payment
  • 100% of the down payment can be a gift
  • Have income limits
  • Non-occupant co-borrower can be an applicant
  • Rental income can be used
  • Available for single-family homes and multiple-unit properties
  • Must be used for primary residence only
  • Non-traditional credit lines can be used as an alternative
  • Private mortgage insurance required if LTV ratio exceeds 80%
  • Homeownership education courses required


Piggyback Loan (10% Down Payment can be a Gift)

A piggyback loan allows you to avoid PMI by getting two loans. The most common type is an 80-10-10 piggyback where the first loan is a conventional loan for up to 80% of the purchase price, the second loan is for 10% of the purchase price equaling a total of 90% of the loan-to-value ratio.

The remaining 10% is the down payment, which can come from gift funds from a friend or family member.

Closing Costs

There are other costs to budget for when buying a house besides the down payment. Closing costs are fees charged by lenders for issuing and processing a mortgage loan. On average, closing costs are between 2% – 5% of the total loan amount.

In order to buy a house with no money due up-front you will need to have the seller pay the closing costs for you. This is possible with many different types of home loans as long as you both agree to the amount of seller-paid closing costs that will be covered in the sales agreement.

Maximum Amount of Seller-Paid Closing Costs Allowed

  • FHA Loan – 6%
  • USDA Loan – 6%
  • VA Loan – 6%
  • Conventional 97 – 3%
  • Home Ready – 3%
  • Home Possible – 3%
  • Piggyback – 3%


Down Payment Assistance Programs

First-time home buyers, more often than not, don’t have a large down payment for a mortgage loan.

Homebuyers can put zero down on their mortgage loan if they have someone willing to gift them the money for the down payment.

Another option is to look for a first-time homebuyer grant or down-payment assistance program

These programs can also be found on your local city or county website. While FHA loans are not zero down mortgage programs, they will allow 100% of the down payment to be a gift.

Buying a House with Bad Credit and no Money Down

When a mortgage lender finances 100% of a home, in theory, they’re taking on more risk. Because of the increased risk, lenders often have more stringent guidelines for these zero-down mortgages. However, VA loans have the lowest default rate of any mortgage program.

This is mainly because the VA works directly with lenders to negotiate new terms when a Veteran is facing financial hardship.

FHA loans are the most likely option for home buyers with bad credit. If you have a 500-579 credit score, you can qualify with 10% down. If your score is 580 or above, you can qualify with just 3.5% down. While you need 3.5% down for FHA, they do allow 100% of the down payment to be a gift.

Minimum Credit Score Requirement by Loan Type

  • FHA Loan – 580 with 3.5% down (500 with 10% down)
  • VA Loan – 580
  • USDA Loan – 640
  • Conventional 97 – 680
  • Home Ready – 620
  • Home Possible – 620
  • Piggyback – 640


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