Buying a home is one of the most expensive purchases you’ll make in your lifetime, which means it can be challenging to save up for your dream home. This is especially true when some mortgage lenders require a traditional 20 percent down payment, which can be costly. For example, 20 percent on a $250,000 home is $50,000, and affording this down payment might not be reasonable for all prospective homebuyers.
Fortunately, there are several down payment assistance programs that federal, state, and local governments have in place to put people on the path to homeownership. So, can you buy a house with no money down? In this article, we’ll explore how to buy a house with no money down with first-time home buyer loans.
Can You Buy a House with No Money Down?
Homeownership brings endless rewards to communities, such as improved curb appeal, higher home values, and a boost to the local economy. With that said, there are programs put in place to encourage people to switch from renting to homeownership. This means that you may be able to buy a house with no money down.
Often, no-down-payment home loans are reserved for specific demographics, such as those living in rural areas or veterans. However, there are low-down payment mortgages that can help home buyers spend less than a 20 percent down payment, often between 3 and 5 percent instead.
First-Time Home Buyer Loans with Zero Down Payment
If you’re buying a home for the first time, you may be eligible for first-time home buyer loans with zero down payment. By qualifying for one of these loans, you won’t have to pay a down payment when signing the deed to a home. VA and USDA loans are the two most common first-time home buyer loans without a down payment. Let’s take a closer look at each and whether you might qualify below.
VA Loans
If you’re wondering how to buy a house with no money down, you may want to look into VA loans. VA loans are offered by private lenders, such as banks or mortgage companies, and are partially guaranteed by the U.S. Department of Veterans Affairs. These home loans require no down payment and are offered to servicemembers, veterans, and eligible spouses to help them afford a home.
In addition to no down payment, VA loans offer several unique benefits, such as low-interest rates, no maximum loan amount, reduced closing costs, and no need for private mortgage insurance (PMI). There are several types of VA loans, such as VA home purchase loans and VA jumbo loans. It’s important to note that not all service members qualify for VA loans. To be eligible for a VA loan, you must meet one of the following criteria:
You have completed 181 days of active duty during a time of peace.
You've completed 90 days in a row of active duty during the conflict.
You have completed 90 days of Title 32 service, with at least 30 of those days being consecutive or more than 6 years of service in the National Guard or Reserves.
You are the spouse of a service member who passed away in the line of duty or suffered a disability related to their service. Additionally, you’re typically not allowed to remarry. However, there are certain exceptions.
USDA Loans
Another tip on how to buy a house with no money down is to look into USDA loans. Similar to VA loans, USDA loans are also sponsored by the federal government. In this case, the government entity is the U.S. Department of Agriculture. A USDA loan, also known as a Rural Housing Loan, requires no down payment, making it easier for those looking to live in rural areas to afford a home.
USDA loans are available to more than those living in rural areas. In many cases, you may qualify for a USDA loan if you live in a suburb, as the goal of USDA loans is to help low- to moderate-income home buyers get on a path toward homeownership.
There are three USDA loan programs: loan guarantees, direct loans, and home improvement loans and grants. These programs offer several benefits, such as low-interest rates and no money down. However, unlike VA-backed loans, if you put no money down on a USDA loan, you will have to pay for private mortgage insurance. To qualify for a USDA loan, you will have to meet the following requirements:
U.S. Citizenship
Strong credit history
Regular income, at least two years
Monthly payment of less than 29% or less of your monthly income
Reside in an eligible area
VA and USDA loans are great options if you’re looking for no-down-payment home loans. Working with a real estate agent or financial advisor can help determine if you meet the eligibility requirements. Securing a no-down-payment mortgage may make it easier for you to afford a home sooner.
Low Down Payment Mortgage
You may be eligible for a low down payment mortgage if you don’t qualify for a no-down-payment home loan. Some examples of low down payment loans include:
Conventional loans: Many people consider conventional loans to be your standard loan for taking out a mortgage and assume you need a 20 percent down payment. However, many banks and mortgage lenders offer flexible options with down payments as low as 3 percent to help first-time home buyers gain access to a loan for a home. Examples of low-down-payment mortgages include Fannie Mae HomeReady loans, Freddie Mac HomePossible loans, and Conventional 97 loans. However, most conventional loans require stronger credit scores, typically around 630 or higher.
FHA Loans: If you have a lower credit score and can’t qualify for a conventional loan, you may be eligible for an FHA loan, which is backed by the Federal Housing Administration. In most cases, you may qualify with a credit score of 580 or higher and secure a home with a down payment as low as 3.5 percent.
First-Time Home Buyer Down Payment Assistance
Several first-time home buyer down payment assistance programs are available to help those looking to become owners afford a home. Examples of down payment assistance programs include:
Down payment grants: Grants for down payments do not need to be repaid, which can help first-time home buyers afford a house with paying little upfront costs. For example, the Down Payment Toward Equity Act grants eligible recipients $25,000 toward a down payment. However, most grants are meant for fostering a community, so there may be terms in place, such as living in the home for at least five years.
Reduced interest rates: Some towns and cities may offer incentives such as interest rate reductions to help first-time home buyers afford a home. By subsidizing low mortgage rates, those looking to break into the housing market can have an easier time.
Closing cost credits: Often, if you qualify for a zero-down payment loan or a low-down payment loan, you’ll still be responsible for closing costs and other fees. However, some programs may offer closing cost credits to first-time home buyers to help them pay less upfront. This one-time cash grant can be used on closing costs such as title fees, mortgage closing costs, realtor fees, and property taxes.
Visit ServiceLink Auction for Property Auctions
If you’re looking for an affordable way to purchase a home, consider buying a house at a property auction. Often properties sold at auction are below market value, making it easier for first-time home buyers and investors alike to purchase a property. At ServiceLink auction, we have a wide range of properties for sale, including foreclosure homes, bank-owned homes, and short sale homes. Interested in an auction property? Browse our upcoming auctions to see what you can find, and explore our financing options to find different paths to homeownership.