If you’re interested in a home but don’t have money for the down payment, you may be in luck.
There are a few types of no down payment mortgage programs you may qualify for.
In this article, we’ll be discussing the different types of zero-down mortgages that are available.
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USDA Loans – Zero Down Payment
The U.S. Department of Agriculture created a housing program to help rural development. The USDA rural development loan is a zero-down mortgage for low-to-moderate-income families.
Another benefit of USDA loans is that the mortgage insurance premium (MIP) is much lower than any other type of mortgage available. Just 0.35% compared to 0.85% for FHA loans.
The annual MIP fee is added to your monthly mortgage payment
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.
VA Loans – Zero 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 borrowers 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. Check the Department of Veterans Affairs website to get your VA certificate of eligibility.
If you’re a member of the Navy Federal Credit Union and are a first time home buyer, you may qualify for a no down payment home loan and no PMI. HomeBuyers Choice mortgage programs for conforming and super jumbo loans. Conforming loans are offered up to the loan limit of $424,100. Jumbo loans available up to 1 million.
FHA Loans (Low Down Payment Home Loan)
Getting a mortgage used to require large down payments and good credit, most Americans couldn’t buy. The Federal Housing Administration was created in 1934 to encourage homeownership by reducing the requirements to get a mortgage loan.
This Government-backed FHA loan program has much more flexible qualifying requirements than conventional loans, making them very popular among first-time buyers.
The FHA insures these loans, so if the borrower defaults on the loan, the FHA pays the lender the amount owed on the home. If you have at least a 500 credit score, you can qualify with a 10% down payment. 3.5% of the home purchase price is needed as a down payment if you have a 580 credit score or higher.
FHA loans come with multiple mortgage terms to choose from. 30-year and 15-year fixed-rate mortgage loans are the most popular. A 15-year fixed-rate mortgage will have a highly monthly mortgage payment, but you will save thousands on interest.
You may be able to get an adjustable-rate mortgage depending on your credit and the lender you work with.
Use gift funds for the down payment to put zero down
FHA allows you to use gift funds for 100% of the down payment amount. You can have a friend, relative, or company gift you the money for the down payment, so you’ll need no money down.
FHA Loan Pros
- 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
FHA Loan Cons
- The purchase price must not exceed the loan limit
- More paperwork is involved
- Mortgage insurance is expensive compared to other loans
FHA 203k Loans (Home Renovation Loan)
An FHA 203(k) mortgage will fund the purchase of the home plus give up to $35,000 cash to make repairs or renovations. The requirements for 203k loans are the same as FHA loans except requiring a higher FICO score.
Many lenders will require you to have a 640 or higher credit score for an FHA 203k loan. The down payment for a 203k loan is the same as FHA, 3.5%. Gift funds can be used for an FHA 203k loan.
Conventional 97% LTV Mortgage (3% Down)
This low down mortgage program was created by Fannie Mae to help more people be able to become homeowners. This is a type of conventional loan available with many mortgage lenders.
Conventional 97 mortgages require just a 3% down payment. That’s even lower than an FHA loan, which requires 3.5% down. Just like FHA loans, the conventional 97 allows 100% of the down payment to be a gift from a friend or family member. Private mortgage insurance (PMI) is required on conventional mortgages with a loan-to-value ratio of more than 80%.
Conventional 97 Loan Pros
- No front-end mortgage insurance is required like FHA loans
- 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
First-time homebuyer down-payment assistance programs
First-time home buyers, more often than not, don’t have a large down payment available for a mortgage loan.
Borrowers can put zero down on their mortgage 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. Government programs and grants can be found on the HUD website.
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.
No money down mortgages with bad credit
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.
Or you can find down payment assistance programs that could allow you to buy a home with no money down. USDA and VA loans require zero down payment.
FHA and Conventional loans need just 3.5% or less down, but 100% of the down payment can be a gift. This would make it possible to buy a house with no money down.
Randall has over 15 years of experience in the mortgage and credit industries. He spends a chunk of time helping consumers understand their credit, advise them on how to increase their credit, and lending his mortgage expertise to help them find the right type of loan. Randall lives in Dallas, Texas with his two sons.