A Guide On How To Buy A House With No Money Down

Buying a home can be very attractive because it's a place of your own where you can put down roots, raise a family and entertain friends. It's also a primary way to pass a legacy to the next generation. But even if you can afford the monthly payment, the upfront investment necessary can be a stopper for many.

In this article, we’ll cover how to buy a house with no money down. If this isn’t an option for you, we’ll also look at other ways of covering your down payment and closing costs as well as various low down payment options.

The short answer is yes: there are ways to buy a house with no money down – from negotiating during the home buying process to government-backed loans and down payment assistance programs, you probably have more options at your disposal than you might think. But let’s take a quick step back.

A down payment is a portion of the purchase price that the buyer pays upfront. Although most mortgage options require a certain minimum percentage of the home value to be set aside for a down payment, there are a couple of well-known zero down payment options.

Whether either of these options will work for you depends on factors like past military service and whether you’re looking for a home in a rural area. There are also low down payment options and other ways of funding your initial investment, but we’ll go over it all.

Zero down payment home loans immediately come to mind when trying to buy a home without a significant upfront cost. However, there are other options including receiving down payment assistance, gift funds or negotiating with the lender and/or seller to cover some or all of the closing costs.

Review Loan Options For Buying A House With No Money Down

When looking for zero-down mortgage options, you’re likely to find that those backed by the government – like USDA and VA loans – are the most straightforward options available. Lending programs through state housing finance agencies may also allow you to purchase without a down payment.

While it’s true that some lenders with access to private funding may offer to finance your home without requiring a down payment, most shy away from 100% financing options due to the risky investment. 

If you do happen to find a lender who doesn’t require a down payment, chances are that the interest rates will be higher and you’ll also need excellent credit history. On the other hand, USDA and VA loans are mortgages with no down payment requirements that can be more accessible and attractive to the borrower than other zero-down loans – but that’s only if you qualify. 

Let’s take a look at some of the common financing options available for purchasing without a down payment.

VA Loans

A VA loan is a loan guaranteed by the United States Department of Veterans Affairs. VA loans don’t require a down payment for qualified home buyers, though most will have to pay a one-time VA funding fee which replaces standard mortgage insurance and covers the cost of foreclosure should you default on the loan.

If you don’t make a down payment, the VA funding fee is 2.15% of your loan’s value, which bumps up to 3.3% with each subsequent use of a zero-down VA loan. If you make a down payment, your VA funding fee may be lower. Additionally, certain clients are exempt from the VA funding fee:

• Clients receiving VA disability benefits
• Qualifying surviving spouses who receive Dependency and Indemnity Compensation
• Purple Heart recipients currently on active duty

If you do have to pay the funding fee, this and other closing costs can often be built into the loan. Although this may mean a higher loan amount and/or interest rate, this may help with affordability.

If you’re an active-duty service member, veteran, or the spouse of a deceased veteran, you may qualify for a VA loan. You should have a credit score of 580 and meet at least one of the following for VA loan eligibility: 

• Must have served 90 consecutive days of active service during wartime
• Served 181 consecutive days of active service during peacetime 
• Must have served over 6 years in the National Guard or Reserves, or have served at least 90 days under Title 32 orders, with 30 of those days being consecutive 
• If you’re the spouse of a deceased veteran who passed in action or as a result of a service-connected disability, you may qualify as a surviving spouse. There are rules around remarriage. Speak to a Home Loan Expert for details.
• If discharged before meeting service time requirements, it must be by reason of service-connected disability

It’s not uncommon that a VA loan may also require proof of reserve funds, or additional money that you won’t be using for upfront costs. Reserve funds basically show that once you close on your loan, you’ll have enough money on hand to begin making your payments. Although this can vary based on your situation, 2 months’ worth of mortgage payments is a good starting point.

You should also consider what kind of property you have in mind for your future home, as that can affect your borrowing options. While a VA loan can be used on condos, the complex has to be on a VA-approved list. 

USDA Loans

A USDA loan is a loan backed by the United States Department of Agriculture and is meant to encourage growth and development in designated rural areas. USDA loans can provide low to moderate-income home buyers with the opportunity to buy a home with a no-down-payment mortgage, and although they require an upfront and annual “guarantee fee,” (with the latter split into monthly payments), this fee is typically lower than those associated with other mortgage options. 

If you’re wondering if a USDA mortgage is right for you, let’s first figure out if you’re eligible. Here is a list of requirements you’ll need to qualify for a no-money-down USDA loan: 

• Your total debt-to-income ratio may not exceed 41%
• Your monthly payment debt-to-income ratio may not exceed 29% 
• The combined gross income of your household cannot exceed 115% of the median income of your home’s county 
• Many lenders require that you have a credit score of at least 640
• You must buy a home that will serve as your primary residence in a USDA-approved rural area 

A common misconception about USDA loans is that your only housing option must be some kind of house in the middle of nowhere. But “rural areas” doesn’t exclusively mean fields and dirt roads – in fact, many suburban areas may qualify – but if your dream home is in the heart of a bustling metropolitan area, then a USDA loan may not be right for you. Take a look at the USDA’s map of eligible areas to see if your dream location is USDA-approved. 

It can also be important to note that while a USDA loan is government-backed, generally you won’t actually get your loan through them. The exception to this is the direct loan they offer for low- or very low-income borrowers. Otherwise, you’ll still need to find a good lender to work with and receive your loan that way. Rocket Mortgage^® doesn’t currently offer USDA loans. 

State Programs

State housing authorities may have their own lending options that don't require a down payment. To find these, do an internet search for your state or local housing authority. A good starting point is a local buying directory maintained by the Department of Housing and Urban Development.

It's important to note that to participate in many of these programs require that you work with an approved lender. Rocket Mortgage doesn’t participate in these programs at this time.

Consider Down Payment Assistance

If you’re a first-time home buyer and you don’t qualify for a zero down payment option, you should consider exploring the different down payment assistance options available to you. Down payment assistance (DPA) comes in the form of grants, loans and other programs reserved for first-time home buyers – and keep in mind that when it comes to real estate, being a first-time home buyer simply means that you have not owned property in the past 3 years.

Let’s quickly break down some of the DPAs that may be available to you and what they have to offer:

• Grants: Grants are essentially just gifted money and are considered the most valuable form of down payment assistance.
• Forgivable loans: Forgivable loans are a second loan that you won’t have to pay back so long as you stay in your home for a determined number of years. Sometimes employers offer this and require a certain amount of time working for the company. With an interest rate of 0% and usually enough funds to cover a whole down payment, if you’re planning on staying somewhere long-term, this is a DPA worth investigating. 
• Deferred-payment loans: This second loan also comes with 0% interest and is usually large enough to cover your down payment. You won’t have to repay a deferred-payment loan until you move, sell, refinance or pay off your first loan – typically, these are paid off with money made from selling your home.
• Matched savings programs: Matched savings programs are run by banks, government agencies or community organizations and are another way that homeowners can receive help making a down payment. As the name would suggest, whatever funds you put into an account with the program will be matched to help cover a down payment. 

Check with your lender to see what forms of down payment assistance they accept. For example, Rocket Mortgage accepts grants, forgivable loans and deferred-payment loans as long as they don’t require the lender to take a subordinate lien position or be approved by the down payment assistance provider. Matched savings programs are not accepted.

Use Gift Money

Down payment gift money is exactly what it sounds like: a sum of money that has been gifted to you from a friend, family member or donor with the intent of going toward the down payment on your home. Your mortgage lender will look at any gifted money you may have during the underwriting process to get a better sense of your assets and gauge your riskiness as a borrower. 

There are two ways that you can receive gifted money: cash down payment gifts and gifts of equity. Cash down payment gifts are simply when you receive cash from the gift giver to use toward your down payment. With cash gifts it’s important that the donor documents the transfer of funds by preparing a gift letter. A gift letter serves as tangible proof that a transaction has taken place while also verifying that gifted funds are not peer-to-peer loans intended to be paid back at a later date. 

Gifts of equity are when you’re sold a property below the sale price – usually by a family member – and they too, will require a gift letter. The difference between the listed price of the property and the price you paid is considered an amount of equity that can be used toward your down payment and closing costs. 

One thing to keep in mind is that, depending on the type of loan you're looking to qualify for, different mortgage investors have different requirements regarding where gifts can come from. Some investors allow gifts that come from family only, and some allow gifts from close friends. Speak to a Home Loan Expert.

Ask Your Lender To Cover Closing Costs

One option you have is to ask your lender to cover some or all of your closing costs. There are a couple ways this can be structured depending on the type of loan you’re getting and which costs are being covered.

Certain costs may be able to be added into the loan balance rather than paid at closing. This is commonly the case with things like the upfront mortgage insurance premium for FHA loans or the VA funding fee.

The other scenario involves taking a lender credit toward closing costs. When lenders do this, they cover all or a portion of your closing costs in exchange for you taking a slightly higher interest rate.

Either way the deal is structured, you will pay more in interest over time, but you could avoid a large upfront payment at closing above and beyond the down payment itself.

Ask The Seller To Pay Closing Costs

You may also be able to negotiate the purchase price of a home or get the seller to cover closing costs which will reduce the amount you have to bring to the table. Stay up to date on the real estate market and be aware if you’re in a seller’s or a buyer’s market. A buyer’s market is when there are more sellers than there are home buyers, which can make sellers more amenable during negotiations and give you some more control. 

If you're looking to buy a home with no money down, you should be aware of both the advantages and the drawbacks.

Low down payment loan options offer more ways to buy a home that don’t require a big pile of cash lying around. Conventional and FHA loans have minimum down payment requirements that can be manageable for low-income home buyers. Conventional loans require as little as 3% down and FHA loans, as little as 3.5%.

Conventional Loans

The prevailing wisdom through the years has been that you needed to put 20% down in order to get a mortgage in most cases. While there may be mortgage insurance payments that need to be made, that's simply no longer the case. If you’re a first-time home buyer, you can get a conventional loan with as little as 3% down. Here are some of the other requirements:

• For a single-unit primary property, a minimum down payment of 3% – 5% depending on first-time home buyer status. Certain conventional loan options may also consider income.
• You need a minimum qualifying credit score of 620 or better. Your qualifying FICO^® Score is generally the middle one between Equifax^®, Experian™ and TransUnion^®. Along with your down payment, your credit score is among the biggest factors impacting your interest rate.
• Lenders also look at your debt-to-income ratio (DTI) in order to determine the monthly mortgage payment you can afford. Soon, this could also affect your interest rate on conventional loans. To give yourself the most mortgage flexibility, we recommend keeping your DTI under 40%.

HomeReady® Loans

Another 3% down option from conventional mortgage investor Fannie Mae is a HomeReady^® loan. Unlike the first option we talked about, you don't need to be a first-time home buyer. Here are the requirements:

• 3% minimum down payment for a 1-unit property
• You can’t make more than 80% of the median income in your area.
• You can qualify with the credit score as low as 620, but pricing may be better with scores of 680 or higher.
• Again, it’s recommended to keep DTI under 40%.

Home Possible® Loans

Home Possible^® is the Freddie Mac equivalent of HomeReady^®. It’s a 3% down program for both first-time and repeat buyers. There is no difference in the requirements between the two. Whether your lender uses Fannie Mae or Freddie Mac will depend on a number of factors, but from a qualification perspective, it’s important to note that these are the same thing.

Freddie Mac BorrowSmart^SM

Freddie Mac BorrowSmart is a 3% down payment option with a credit that can be used to fund your down payment.¹ The amount of the credit that you can get depends on your income. For example, if you make between 50% – 80% of the median income in your area, the base credit is $1,250. If you make 50% or less of your area median income, the credit increases to $2,500.

Here are the other qualifications:

• 3% down payment (could be funded entirely from the assistance received)
• 620 credit score with better pricing with scores of 680 or higher
• Qualifying DTI will vary, but stay below 40% for best pricing
• You can’t exceed 80% of the median income in your area.
• You have to complete a $99 homeownership counseling course.

Freddie Mac BorrowSmart Access^SM

Freddie Mac BorrowSmart Access is a special-purpose credit program (SPCP).² The idea of SPCPs is that they help level the playing field for certain underserved populations that have historically found it difficult to access traditional lending and credit markets. Among other things, this helps bridge the housing gap felt in certain communities.

As a first-time home buyer, you could qualify for $3,000 toward your down payment if you live in an eligible County and one of the following MSAs:

• Atlanta-Sandy Springs-Alpharetta, Georgia
• Chicago-Naperville-Elgin, Illinois, Indiana, Wisconsin
• El Paso, Texas
• Houston-The Woodlands-Sugar Land, Texas
• McAllen-Edinburg-Mission, Texas
• Memphis, Tennessee, Mississippi, Arkansas
• Miami-Fort Lauderdale-Pompano Beach, Florida
• Philadelphia-Camden-Wilmington, Pennsylvania, New Jersey, Delaware, Maryland
• St. Louis, Missouri, Illinois

The other requirements for this program include the following:

• 3% minimum down payment
• Primary residences only
• 620 qualifying FICO® Score
• You can’t make more than 140% of the median income in your area.
• At least one client has to be a first-time home buyer.
• Homeownership education is required, but it’s free.

Purchase Plus

The last conventional loan option we will look at includes an SPCP called Purchase Plus. This is targeted at homeowners in eligible census tracts in one of six MSAs:

• Atlanta-Sandy Springs-Roswell, Georgia
• Baltimore-Columbia-Towson, Maryland
• Chicago-Naperville-Elgin, Illinois-Indiana-Wisconsin
• Detroit-Warren-Dearborn, Michigan
• Memphis, Tennessee-Mississippi-Arkansas
• Philadelphia-Camden-Wilmington, Pennsylvania-New Jersey-Delaware-Maryland

Homeowners in eligible areas could get a base credit of $5,000. Rocket Mortgage is putting in an additional 1% of your loan amount up to $2,500. These can be used toward closing costs as well as your down payment. Here are the other details:

• You have to live in one of the eligible areas when you apply, but you can buy your home anywhere.
• You have to purchase a primary residence.
• One client has to be a first-time home buyer.
• You’ll need at least a 620 credit score.
• 3% minimum down payment (can include funds from the credit)

FHA Loans

FHA loans are another great option for first-time home buyers who don’t have a sizable down payment. You can get an FHA loan on a primary property with as little as 3.5% down. But the big selling point of an FHA loan is that your credit score can be as low as 580 if your house payment and overall DTI are low enough.

If you’re considering going with this type of loan, you should be aware that FHA appraisal requirements around safety and move-in readiness are a little more stringent. Here are the other requirements:

• 5% down payment
• Primary residence only
• 580 minimum credit score with more flexibility on DTI at 620 and higher
• Your mortgage payment can’t account for more than 38% of your gross income and 45% of your total DTI with a 580 qualifying credit score. If your qualifying credit score is 620 or better, there’s more flexibility in DTI, but the exact qualification ratio is handled on a case-by-case basis.

Zero-down mortgages make the most sense if you have limited savings that you may need to put toward other expenses. These may include closing costs, moving expenses or even furniture. Additionally, you might choose to use the money you would normally put toward a down payment to do work on your new home.

There’s also no doubt that one of the top real estate trends in recent years has been ever-increasing home prices. By qualifying for a zero-down mortgage, you might be able to stretch your budget.

Now that you understand the landscape of zero-down and low-down payment mortgages, let's try to answer a few common questions around this topic.

Is it a good idea to put no money down on a house?

There's no right or wrong answer to this question. On one hand, not having to spend money on a down payment can allow you to put your budget toward furniture, other closing costs and moving expenses, among other things. On the other, making a significant down payment can lead to a lower rate because there's less risk for the lender.

Can I get approved with no money down?

If you qualify for a VA or USDA loan, it’s very possible to get approved with no money down. Remember that this doesn’t necessarily mean no money due at closing. There are other costs associated with originating your loan. USDA loans and VA loans have upfront guarantee and funding fees, respectively, to consider.

What is the lowest possible down payment for a house?

For loans that require them, the down payment size varies based on the type of loan you’re looking at. For a single-unit primary residence, the minimum down payment on a conventional loan is 3% – 5%, depending on income level and whether you’re a first-time home buyer. FHA loans have a 3.5% minimum. Single-unit jumbo loans up to $2 million have a 10.01% down payment minimum.

What credit score do you need for a zero-down home loan?

You can get approved for a VA loan with zero down and a credit score as low as 580 if you have a low enough DTI. While we don’t do USDA loans, many lenders require a qualifying credit score of 640 or higher for approval. Options through state housing finance agencies will have their own requirements laid out on the site.

It’s possible to buy a home without a down payment. You may be able to qualify for loans through the USDA, VA or state housing finance agencies that don’t have a down payment requirement.

This could allow you to put more money toward other closing costs, moving expenses, furniture and other items associated with buying a home. On the other hand, buying without a down payment may lead to a higher interest rate because your down payment is one of the key determinants in the loan terms you get.

If you would like to look at your options for a VA loan or any of the other low down payment loans we discussed, you can start the application online and take the first step to finding your new home. You can also feel free to give the Home Loan Experts at Rocket Mortgage a call at (833) 326-6020.

¹ Client will receive $1,250 credit towards down payment if the qualifying income is greater than 50% and less than or equal to 80% of the area median income OR $2,500 if client’s qualifying income is less than or equal to 50% of the area median income.  Minimum FICO of 620 is required. Maximum LTV of 97% or 105% with DPA Second Lien. Maximum DTI is 45-50%, as determined by LPA decision. Offer valid on primary residence only. Offer valid on purchase transactions only. Home Possible Investor loan level price adjustments (LLPA) caps may apply. Offer is not valid for correspondent channels or Schwab Channel Products. Client is required to complete 1:1 Homebuyer Education Course with GreenPath facilitated by Homeownership Preservation Foundation (HPF). The course has a fee of $99 that must be paid out of pocket by the client at the time of their counseling. Additional required documents include eligibility certification, housing counseling completion certificate, and course receipt all provided to the client from Homeownership Preservation Foundation through email. Offer is nontransferable. Offer cannot be applied retroactively. Offer may not be redeemed for cash, and no change will be given if the discount amount exceeds costs otherwise due. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. This is not a commitment to lend. Additional restrictions/conditions may apply.

² Client will receive a $3,000 credit toward down payment. Offer valid only for first-time home buyers when qualifying income is less than or equal to 140% AMI and when the property is located in an eligible county within the following metropolitan statistical areas: Atlanta-Sandy Springs-Alpharetta, GA, Chicago-Naperville-Elgin, IL-IN-WI, Detroit-Warren-Dearborn, MI, El Paso, TX, Houston-The Woodlands-Sugar Land, TX, McAllen-Edinburg-Mission, TX, Memphis, TN-MS-AR, Miami-Fort Lauderdale-Pompano Beach, FL, Philadelphia-Camden-Wilmington, PA-NJ-DE-MD, St. Louis, MO-IL. Client is required to complete one-on-one Homebuyer Education Course with GreenPath facilitated by Homeownership Preservation Foundation (HPF). Offer valid on new loans locked on or after 2/28/2023. Offer valid on primary residence retail purchase loans only. Offer is not valid for team member or Schwab channel products. Offer is nontransferable and cannot be combined with any other discounts. Offer cannot be applied retroactively. Offer may not be redeemed for cash. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional restrictions/conditions may apply. This is not a commitment to lend.