Last Updated on June 6, 2023 by Bob Filipczak
A no down payment mortgage is like the holy grail for first-time home buyers, and any home buyer for that matter. Everyone wants to find it, but finding one involves some luck, some preparation and some research. The requirements and eligibility are tightly regulated, but if you are willing to look at down payments that are almost zero, the options open up a bit more. Let’s look at both zero down payment mortgages and “almost zero” low down payment opportunities.
In the world of home loans with no down payment, there are only two. That’s it. Two. Buying a house with a no down payment mortgage is only possible if you get one of the following loans from the federal government: the VA Loan or the USDA loan.
It’s important to remember that these two loan programs are mortgage loan guarantees, not the actual loan itself. Both will insure the loan so private mortgage lenders have less risk when they give you a loan. In either case, you still get your home loan from a banker or mortgage broker.
VA Loan: No Down Payment Mortgage Option
This loan program is specifically reserved for active armed forces personnel, including military veterans. It serves personnel from all of the armed and uniformed forces including the Army, Navy, Marines, Air Force, Coast Guard, Space Force, National Guard, and Reserve. In some cases, surviving spouses of service members who were killed in the line of duty may also be eligible.
VA loan guarantees offer substantial benefits, such as mortgage loans with no down payment. That’s the big one. The current median down payment in the United States is $8,200, so this program takes that right off the top. It also includes reduced mortgage interest rates, and the complete waiver of private mortgage insurance. Add these three benefits together and you will save tens of thousands of dollars – up front and with every monthly payment. For more information, a comprehensive list of VA loan benefits is available.
USDA Loan: No Down Payment Mortgage Option
This 0 down payment mortgage program is designed for individuals who want to purchase homes in rural areas. The USDA loan guarantee makes buying a house with no down payment a reality for the right buyers. Like the VA loan, these are backed and insured by the USDA and the federal government, while the funds themselves are provided by private lenders and banks.
The USDA defines “rural” as a town with a population of less than 35,000 people, encompassing 97% of the United States. If you are looking at property and want to know if it’s available for a USDA loan guarantee, you can consult their map. Income limitations apply to USDA loans, primarily targeting individuals with moderate or lower incomes. The eligibility criteria and income limits for these loans are clearly outlined.
Low Down Payment Options
There are a number of low down payment options that aren’t completely 0 down payment, but they are close at 3% and 3.5%. And you don’t have to be a soldier or a rural resident to get one.
FHA Loans
While a 0 down mortgage is ideal, the FHA loans deliver a mortgage loan guarantee with only 3.5% down. That’s a great saving over the median down payment (13% or 8% for first time home buyers) in the U.S.
Like the first two, FHA home loans are government-backed loans insured by the Federal Housing Administration and offered by approved lenders. These loan guarantees are designed for individuals with low to moderate incomes and lower credit scores. The combination of a low down payment requirement and relaxed credit criteria makes the FHA loan a bargain if you qualify.
Some of the benefits include smaller down payments, flexible approval requirements compared to conventional loans, and the ability to secure financing even with a low credit score. It’s important to note that the FHA program is not exclusive to first home buyers; it is open to everyone.
Conventional 97
On the conventional loan side of the mortgage equation, there are four loan programs that may provide the lowest down payment on a house. Each type of loan calls for a 3% down payment, which is why they are called the Conventional 97.
These special programs are designed to assist first-time buyers avoid a large down payment:
- Fannie Mae HomeReady Loans are for buyers with lower incomes who have a minimum credit score of 620 and who complete homebuyer counseling.
- Fannie Mae 97% LTC Standard Loans help first-time homebuyers with credit scores of 620 or higher.
- Freddie Mac Home Possible Loans are available for those with credit scores of 660 or higher, who live in underserved areas, or whose income is below a set limit.
- Freddie Mac Home One Loans are for first-time homebuyers who enroll in and complete homebuyer education. These loans are available for single-family homes that will be the primary residence for the homebuyer.
Fannie Mae and Freddie Mac are private companies who buy mortgages and, thereby, set some of the rules about lending and borrowing.
No Down Payment Mortgage Using a Gift
There is one more way to manage buying a house without a down payment: through a gift. Typically, first time home buyers may receive monetary gifts from family members or close friends to contribute towards their down payment for conventional mortgages. If, however, you want a gift to cover the whole down payment on a loan, the lender is going to ask for a full 20% down payment.
It all depends on the mortgage lender, so it’s essential to have an upfront discussion with them. Gift money is subject to specific guidelines and regulations, so do your research. Lenders often require a gift letter and supporting documentation to confirm that the funds are indeed a gift and not a loan.
Save on Lender Fees with Homes for Heroes
Buying a home with a no down payment mortgage is not straightforward and easy to understand. We can help. Homes for Heroes can set you up with a real estate specialist who can help you navigate the world of buying a new home, and a mortgage specialist who can help you work through pre-approval and the down payment process.
“We didn’t know Homes for Heroes existed. Our VA loan lender recommended one of your agents and she was so knowledgeable about your program and the VA loan process. Who you work with matters! We were very fortunate to get connected with the best, most knowledgeable group of realty professionals.” – Allen is in the Army and found a new home in Tennessee.
We have a network of mortgage specialists who are committed to helping community heroes like you. For more than 20 years, we have helped military service members, veterans, firefighters, EMS professionals, teachers and educators, healthcare professionals, and the law enforcement community. We help them find a home and then finance a home.
At the end of the journey, after the closing, we send you a Hero Rewards® check that averages $3,000. It’s our way of saying a collective thank you for all of your service.
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