When you’re a veteran or active-duty service member, the idea of buying a home with a VA loan is appealing. These government-backed mortgages often come with lower interest rates, no down payment, and flexible guidelines.
But what if your credit score isn’t ideal?
It’s easy to feel discouraged, but having “bad” credit doesn’t always mean it’s a dead end. With the right approach, you can still qualify for a VA home loan despite a shaky credit history.
Let’s explore what steps you can take to improve your odds, what the process involves, and which strategies can help you navigate common roadblocks.
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Not every type of home loan requires a down payment. While many mortgages call for at least 3% upfront, there are specific loan programs that allow you to finance a home purchase completely—meaning no money down at closing. If you’re struggling to save or want to keep more cash in your pocket, these options can be a lifesaver.
This updated guide walks you through the different types of 100% financing home loans available today, along with their requirements and potential drawbacks.
Table of Contents
6 Home Loans that Provide 100% Financing
• USDA Loans
• VA Loans
• Navy Federal Credit Union (NFCU) HomeBuyers Choice Mortgage
• FHA Loans with the Chenoa Fund
• Conventional HomeReady Loans with the Chenoa Fund
• Good Neighbor Next Door Program (effectively $100 down, which is close to zero)
Let’s explore each of these in more detail.
100% Financing Home Loans
The U.S. Department of Agriculture’s loan program was created to help low-to-moderate income borrowers purchase homes in rural or suburban areas. Surprisingly, “rural” can mean more places than you might think. Many USDA-eligible properties are in suburban neighborhoods near major cities. In fact, USDA loans are accessible in a large portion of the country’s land area.
These loans offer 100% financing, require a minimum 640 credit score in most cases, and come with low mortgage insurance rates (0.35% annually). Another perk is that USDA has repeatedly delayed updating their eligibility maps, often leaving certain suburban areas eligible longer than initially anticipated. This can be a big advantage if you’re eyeing a property that might not seem traditionally “rural.”
USDA Requirements:
• Income below 115% of the Area Median Income (AMI)
• At least a 640 credit score (some lenders may be flexible)
• 1% upfront mortgage insurance fee (financed into the loan)
• Up to 50% debt-to-income ratio
• Property must be in an eligible USDA area
• Primary residences only
• Annual mortgage insurance required (but low compared to other loans)
VA Loans
VA loans are reserved for eligible active-duty service members, veterans, and their surviving spouses. They provide 100% financing with no mortgage insurance—a major advantage. VA loans have some of the most flexible guidelines around credit and debt-to-income ratios, often accepting scores as low as 580-620, depending on the lender.
What makes VA loans stand out is that they don’t require any ongoing mortgage insurance premiums. Instead, there’s a one-time funding fee (which can be financed) to cover the government’s guarantee. Interest rates and closing costs also tend to be competitive, making VA loans a top choice if you qualify.
VA Loan Requirements:
• Minimum credit score typically 580-620 (varies by lender)
• Up to 50% debt-to-income ratio possible
• Primary residence only
• Typically a 24-month waiting period after bankruptcy or foreclosure
• No monthly mortgage insurance required
Navy Federal Credit Union HomeBuyers Choice Mortgage
If you’re a Navy Federal Credit Union member, you might be able to take advantage of its HomeBuyers Choice Mortgage program, which offers 100% financing. This loan is somewhat similar to a VA loan in that no mortgage insurance is required, which can lower monthly payments significantly.
NFCU membership is open to more than just active-duty or retired military—you may qualify if you’re a Department of Defense employee or have an eligible family member who served. Another zero down option from NFCU is the Military Choice Mortgage, which, unlike HomeBuyers Choice, can sometimes finance second homes as well, depending on the program’s current guidelines.
Eligible Borrowers for Navy Federal Loans:
• Veterans and active-duty service members across all branches
• Certain Department of Defense civilian employees
• Family members of military personnel
Chenoa Fund with FHA Loans
The Chenoa Fund, offered by CBC Mortgage Agency, provides down payment assistance (DPA) to low-to-median income families who are taking out FHA loans. Normally, FHA loans require 3.5% down, but with the Chenoa Fund covering that amount, you effectively end up with zero down financing.
If your household income is below 115% of the area median income, and you make 36 consecutive on-time payments, the second mortgage (the DPA part) can be forgiven. For those above the 115% threshold, you’ll have a repayment period of up to 10 years at zero interest. Note that you’ll still be responsible for mortgage insurance (MIP) since FHA loans always require it, regardless of down payment size.
Chenoa Fund FHA Requirements:
• Minimum 620 credit score
• MIP required on the FHA loan
• Income below 115% AMI qualifies for forgiveness of the assistance
• Above 115% AMI can repay assistance over 10 years, interest-free
• Homebuyer education may be required, depending on your credit profile
Chenoa Fund with Conventional HomeReady Loans
HomeReady is a conventional loan program from Fannie Mae designed for low-to-moderate income borrowers. It requires as little as 3% down. But when you pair a HomeReady loan with the Chenoa Fund, which provides 3.5% down payment assistance, you end up with no out-of-pocket down payment and possibly a little extra to help cover closing costs.
Chenoa Fund HomeReady Requirements:
• Minimum 640 credit score
• Private mortgage insurance (PMI) is required
• Income limits: no income limits in certain low-income census tracts, and generally up to 100% of AMI in other areas
• Not restricted to first-time buyers
• Homebuyer education course required
Good Neighbor Next Door Program (FHA + $100 Down)
If you’re a full-time law enforcement officer, teacher, firefighter, or emergency medical responder, the Good Neighbor Next Door (GNND) program might be an option. While not truly zero down, it allows certain borrowers to buy eligible HUD-owned homes with just $100 down, which is almost as good as 100% financing.
These loans work in conjunction with FHA financing. The $100 down program can drastically reduce your upfront costs, making homeownership far more accessible.
Good Neighbor Next Door Requirements:
• Must be a full-time law enforcement officer, teacher, firefighter, or emergency responder
• $100 down payment on eligible HUD-owned properties
• 50% maximum debt-to-income ratio
• No income limits, but the property must meet FHA loan limits
Down Payment Assistance, Grants, & Gift Funds
If you’re not eligible for the above programs, you can still get creative with your financing. Many loan programs allow your down payment to come from gifts or grants. For instance, FHA and VA loans permit gift funds from family members or certain approved organizations. Conventional loans like HomeReady also allow gifts, but often limit who can provide them.
Local first-time buyer assistance programs or grants can also help offset down payment and closing costs. Check with your local county or city housing office for available programs—these can provide zero or low-interest secondary loans, grants, or matching programs to reduce your initial cash requirement.
Home Loans Requiring a Low Down Payment
While 100% financing is great, it’s not always possible. Fortunately, several low-down-payment programs are available:
• FHA Loans: 3.5% down with a 580+ credit score. Gift funds are allowed, and the down payment can come entirely from gifts.
• Conventional 97 Program: Requires just 3% down, but typically needs a higher credit score of around 680.
• Home Possible and HomeReady Loans: Designed for low-to-moderate income buyers with as little as 3% down. Minimum 620 credit score required. These loans often have flexible underwriting and can help you qualify if you meet income limits.
Why 100% Financing Isn’t the Norm
Most mortgage insurers and lenders prefer the borrower to have some financial stake in the property, usually at least a small down payment. Without it, the lender and insurer bear more risk.
Government-backed loans like USDA and VA can offer 100% financing because the government assumes that risk. Private mortgage insurers typically won’t insure zero-down conventional loans, making government guarantees essential.
Not everyone can afford a 20% down payment. That’s where low and zero down programs come into play. But keep in mind that if you put less than 20% down on most loans, you’ll pay mortgage insurance (PMI or MIP). This monthly fee protects the lender if you default.
Upfront Costs Associated with Getting a Mortgage
Even if you manage a zero-down loan, you’ll still face some initial costs.
Closing Costs
These are fees charged by lenders and other parties involved in the transaction. They can range from 2% to 5% of the loan amount. In some cases, the seller can contribute to your closing costs, up to a certain limit depending on the loan type. Negotiating seller concessions or using a down payment assistance program that also helps with closing costs can lessen the burden.
Upfront Mortgage Insurance Premium (MIP)
For government-backed loans like USDA and FHA, an upfront mortgage insurance fee is common. USDA loans charge a 1% upfront MIP, and FHA loans charge a 1.75% upfront MIP (financed into the loan). VA loans have a funding fee instead of ongoing mortgage insurance. Depending on your borrower type and down payment, the funding fee for VA loans can vary.
Home Appraisal
An appraisal is required by most lenders to confirm the home’s market value. This cost typically ranges from $400 to $600, but it can be higher for larger homes. The appraisal ensures you aren’t overpaying and that the lender isn’t loaning more than the property is worth.
Home Inspection
A home inspection, usually $300 to $500, isn’t required by lenders but is strongly recommended. This report identifies potential issues with the home’s structure, systems, or appliances. You might negotiate repairs or concessions from the seller based on the inspection results. Skipping an inspection can be risky—buyers often regret it if problems arise after closing.
The Bottom Line
Finding a mortgage with 100% financing can be challenging, but it’s not impossible. Whether you’re a first-time buyer looking at USDA loans or a veteran considering a VA loan, options exist.
Even if you don’t qualify for a zero-down program, grants, gift funds, and local assistance might bridge the gap. Consider all your options, talk to multiple lenders, and compare offers.
With some research and persistence, you can land a loan that fits your budget and gets you into your new home.
FAQ
What credit score do I need to qualify for a 100% financing home loan?
Requirements vary by program, but many loans allow scores as low as 620, while VA loans might go even lower. Lenders consider your full financial profile.
Are VA loans the only option for zero down payment with no mortgage insurance?
VA loans are unique in not requiring mortgage insurance. Other zero-down options often include some form of mortgage insurance or guarantee fee.
Can I use gift funds or grants to cover my closing costs?
Yes. Many programs allow gifts, grants, or local assistance to cover closing costs. Check each loan’s guidelines for acceptable funding sources.
Does a USDA loan require the home to be far from the city?
Not always. Many suburban areas qualify as rural. Eligibility maps often include locations near major metro areas, so it’s worth checking.
Do I need to be a first-time buyer to use these zero-down programs?
Not necessarily. Some programs target first-time buyers, but others, like VA loans, have no such restriction. It depends on the specific loan rules.
