Can You Buy a House with No Money Down?

Zero Down Option #1: The USDA Home Loan

What is a USDA Loan?

The U.S. Department of Agriculture offers a 100% financing mortgage. The program is also technically called a Section 502 mortgage, however, it’s more commonly known as ’Rural Housing Loan’ or a ’USDA loan.’

Despite the term “rural loan“ the USDA loan program is also available to low-to-moderate income homebuyers in less-populated suburbs of some major U.S. cities suburban areas.

Some key benefits of the USDA loan include:

• No down payment requirement
• No maximum home purchase price
• Eligible home repairs and improvements may be included in your loan amount
• Upfront guaranteed fee can be added to the loan balance at closing; mortgage insurance is collected monthly

USDA Home Loan Requirements

To be eligible for many USDA loans, household income must meet certain guidelines. Also, the home to be purchased must be in an eligible rural area as defined by USDA. According to the USDA website applicants interested in obtaining a direct loan must have an adjusted income that is at or below the applicable low-income limit for the area where they wish to buy a house as well as demonstrate a willingness and ability to repay debt. (Note: household income includes the income of all adult household members.)

Additional eligibility requirements can be found at the USDA Income and Property Eligibility website.

USDA mortgage rates are often lower than rates for comparable, low- or no-down-payment mortgages. For qualified applicants, financing a home via the USDA can be the lowest-cost path to homeownership.

Zero Down Option #2: The VA Home Loan

 What is a VA Loan?

A VA loan is a loan guaranteed by the United States Department of Veteran Affairs. Designed for active-duty military, Veterans, and their families, this loan requires zero money down. While standard mortgage insurance is not required, the Funding Fee is specific to VA loans and is paid upfront. For purchase loans, the one-time fee usually ranges from 1.4% to 2.3% of the loan amount, depending on the loan down payment.  

The VA is technically not a mortgage lender as private lenders originate the loan, and the VA guarantees a portion of it. No down payment is required if the sales price isn’t higher that the properties appraised value.

Although VA loans are credit flexible, applicants must have a stable income, and a steady job, however, a Veteran may be retired to qualify. All applicants must also meet some basic military service requirements.

VA Loan Requirements

Here are a few of the requirements listed by the U.S. Department of Veterans Affairs.  

• Served 90 consecutive days of active service during wartime (or less if you were discharged for a service-connected disability.
• Served 181 days of active service during peacetime
• Served more than six years with the National Guard or Reserves (or 90 days under Title 32 with at least 30 of those days being consecutive)

There are also VA loan programs for surviving spouses of a service member who died in the line of duty or from a service-related disability.

For the lender to make a VA-backed loan you must provide proof that you meet the eligibility requirements. A Certificate of Eligibility, or (COE,) serves as that proof. Your COE will have the entitlement amount on it so the lender knows exactly how much the VA will give them if you were to default. Detailed information on how to obtain a COE for a loan can be found on the VA website.

Other Down Payment Options

Other lower down payment options include the FHA 3.5%, Fannie Mae HomeReady 3.5%, and Conventional loans.  Let’s look at how much of a down payment is required for each.

FHA Loan Down Payment

A loan backed by the Federal Housing Agency (FHA) requires a down payment of 3.5%. A monthly mortgage insurance premium (MIP) and upfront mortgage insurance premium (UFMIP) of 1.75% is paid on every loan regardless of down payment. 

Benefits of the FHA Home Loan:

• • Low down payment requirement (as low as 3.5%)
  • Flexibility on debt-to-income ratio
  • Qualify with less-than-perfect credit
  • Down payment funds from family/friends allowed
  • Purchase or refinance loan options available

Fannie Mae HomeReady® Down Payment

This type of a conventional loan is designed to provide affordable mortgages to borrowers with low-to-moderate income. With Fannie Mae HomeReady, homebuyers can get started with as little as 3% down. (Note: With this program the down payment does not need to be from borrower's own funds, it could result from a gift. Also, at least 1 borrower must complete homebuyer education when all borrowers are first time homebuyers.) 

Freddie Mac Home Possible® Loan**

Another type of conventional loan, Freddie Mac Home Possible offers flexible, expanded guidelines, and requires a down payment of 3%. (Note: With this program the down payment does not need to be from borrower's own funds, it could result from a gift. Also, at least 1 borrower must complete homebuyer education when all borrowers are first time homebuyers.) 

Next Steps: Home Search, Pre-Approval and Credit Check

When it comes to the right loan option including lower down payments, there are a variety of options depending on your unique situation. Whether you’re looking to buy now or just starting your research, familiarizing yourself with down payment requirements and the mortgage process can help you make an informed decision when the time is right for you. Search for your home or read more on mortgage qualifications here.

Newrez is here to help you explore the options available as well as help you determine the most effective path for making your dream of homeownership come true.