“Discover the Key to Qualifying for a Mortgage!”
Summary: A no-down-payment mortgage enables you to finance your home entirely without any upfront payment, though you may still need to cover closing costs. VA and USDA loans are popular options that often do not require a down payment. If you do not qualify for a no-down-payment mortgage, consider low down payment loans such as conventional or FHA loans, or explore down payment assistance programs. If you are eligible for a no-down-payment mortgage, you can secure a loan for the full purchase price of a home.
What is a no-down-payment mortgage?
A no-down-payment mortgage allows you to skip making a down payment at closing, enabling more buyers to afford homeownership amidst rising home prices. Eliminating the need for a down payment can significantly reduce one of the major upfront costs associated with buying a home.
No-money-down mortgage choices:
The primary no-down-payment mortgage options are VA and USDA loans.
VA loans: Available to military service members, veterans, and surviving spouses, VA loans typically do not require a down payment and do not include mortgage insurance. However, there is a funding fee, ranging from 1.25% to 3.3% of the loan amount, which can be paid at closing or rolled into the mortgage.
USDA loans: Backed by the U.S. Department of Agriculture, USDA loans are for lower- to moderate-income buyers in eligible rural areas and do not necessitate a down payment. There is an upfront guarantee fee of 1% of the loan amount, plus an ongoing annual fee of 0.35% of the loan amount. Refinancing to a non-USDA loan is the only way to eliminate the annual fee.
Alternative zero-down mortgage options:
If you do not qualify for VA or USDA loans, other options could still allow you to obtain a no-down-payment mortgage, such as Sunmark Credit Union’s Dream Bigger mortgage or physician mortgages for medical professionals with school debt.
Gift funds from family or friends can be used for the down payment on most loan types, potentially allowing you to avoid putting down any of your own money.
Low-down-payment mortgage choices:
If you do not meet the criteria for a no-money-down loan, you may still be eligible for a low-down-payment mortgage option, such as a 3% conventional loan through Fannie Mae or Freddie Mac’s Conventional 97, HomeReady, Home Possible, or HomeOne programs.
Paying for private mortgage insurance (PMI) can vary in cost based on your down payment amount and credit score. Once your home reaches 80 percent loan-to-value (LTV), you can ask the lender to remove PMI. Otherwise, it will automatically be removed once you reach 78 percent LTV.
FHA loans, insured by the Federal Housing Administration (FHA), require only a 3.5 percent down payment with a credit score as low as 580. If your credit score is between 500 and 579, a 10 percent down payment is needed.
Similar to PMI, FHA loans require FHA mortgage insurance, which includes an upfront mortgage insurance premium (MIP) at closing and an annual MIP divided among your monthly payments. The upfront MIP is 1.75 percent of your loan amount, and the annual MIP depends on your down payment and other factors. If you make a down payment of 10 percent or more, you’ll pay the annual MIP for 11 years; otherwise, you’ll pay it for the life of the loan.
Some mortgage lenders offer conventional programs with only a 1 percent down payment, like Rocket Mortgage’s ONE+ program. In this case, the lender covers 2 percent of the required 3 percent down payment for a HomeReady or Home Possible loan, and you provide the remaining 1 percent.
The Good Neighbor Next Door (GNND) program is for public service professionals, offering a discount of up to 50 percent on qualifying homes in select areas.
While no-down-payment mortgages can be appealing with the ability to buy a home sooner and keep more cash on hand, there are drawbacks too. These include having little to no equity, potentially higher interest rates, needing a bigger mortgage, and paying additional fees. Consider these factors when deciding if a no-down-payment mortgage is right for you.
To ensure manageable loan payments over time, consider making a down payment if it fits within your budget.
FAQ: What credit score is required to purchase a house with no money down? The Department of Veteran Affairs and the U.S. Department of Agriculture do not have a minimum credit score requirement for VA and USDA loans. However, most lenders that offer these types of loans typically require a credit score in the “fair” range: 620 for VA loans and 640 for USDA loans.
What options are available if I do not qualify for a low-money-down loan? If you do not meet the criteria for a no- or low-down-payment mortgage, you may want to explore down payment assistance programs. These programs often provide loans or grants to first-time or repeat homebuyers who fall within specific income thresholds based on their location. These funds can usually be utilized for both the down payment and closing costs.
