Can I Buy a House With Zero Down?

Government-Backed Zero Down Payment Options

Purchasing a home without a down payment is often possible through specific government-backed loan programs designed to make homeownership more accessible. These programs offer benefits for eligible borrowers, unlike conventional mortgages that typically require an upfront percentage of the home’s purchase price. Two prominent options are loans backed by the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA).

Loans guaranteed by the Department of Veterans Affairs are available to eligible service members, veterans, and surviving spouses. To qualify, borrowers must meet specific service requirements, which vary based on the period of service, such as 90 consecutive days of active service during wartime or 181 days during peacetime. Obtaining a Certificate of Eligibility (COE) from the VA is a foundational step, confirming a borrower’s eligibility for this benefit. This certificate is provided to the lender and helps facilitate the loan process.

A key advantage of a VA loan is that it does not require a down payment. Unlike many other loan types, VA loans also do not require private mortgage insurance (PMI), which can reduce monthly housing costs. While PMI is absent, a one-time VA funding fee is usually required, calculated as a percentage of the loan amount, though some veterans with service-connected disabilities may be exempt.

VA loans are not originated by the VA itself but are provided by private lenders. The VA’s role is to guarantee a portion of the loan, which reduces risk for the lender and enables them to offer more favorable terms. This guarantee protects the lender in case of borrower default, making lending more accessible for those who have served.

Another government-backed option is the USDA Rural Development loan. These loans assist low-to-moderate income individuals in purchasing homes in eligible rural areas. Property eligibility is determined by specific geographic boundaries, meaning homes must be located in areas designated as rural by the USDA, which can include many suburban communities.

Borrower income limits are a key eligibility criterion for USDA loans, ensuring the program serves those within a certain income bracket relative to the area’s median income. These limits vary by location and household size, so prospective borrowers must check the specific thresholds for their target area. The USDA loan program also offers 100% financing, eliminating the need for a down payment.

USDA loans involve two types of fees: an upfront guarantee fee and an annual fee. The upfront guarantee fee is a percentage of the loan amount, paid at closing, and can be financed into the loan. An annual fee is also assessed, calculated as a percentage of the outstanding loan balance, which is paid monthly as part of the mortgage payment. These fees help to sustain the program and protect the government against potential losses.

USDA loans are offered through private lenders, with the USDA providing a guarantee. The USDA also offers a direct loan program for very low and low-income individuals, where the loans are originated and serviced by the USDA itself. Both the guaranteed and direct programs aim to promote rural development by expanding homeownership opportunities.

Down Payment Assistance Programs

Even if a specific loan program does not offer 100% financing, down payment assistance (DPA) programs can bridge the gap, allowing homebuyers to purchase a property with little to no out-of-pocket cash for the down payment. DPA programs are financial aid initiatives designed to help cover the down payment and sometimes closing costs associated with a home purchase.

Common types of DPA include grants, which do not need to be repaid, and second mortgages or deferred loans, which may require repayment under certain conditions or at a future date. Some deferred loans might be forgivable, meaning the loan balance is gradually reduced or completely eliminated over a set period, often after five to ten years, as long as the homeowner remains in the property.

These assistance programs are offered by state housing finance agencies (HFAs), local government entities, and non-profit organizations. Many states have at least one HFA that administers DPA programs, often in conjunction with specific mortgage products like FHA, VA, USDA, or conventional loans. Employer-assisted housing programs are another source, where companies may offer financial aid to employees for homeownership.

Eligibility criteria for DPA programs include income limits. Credit score requirements are also common, though they can be more flexible than those for primary mortgages. Many DPA programs are aimed at first-time homebuyers, defined as someone who has not owned a home in the past three years, though exceptions exist for certain circumstances.

To find available DPA programs, prospective homebuyers can research their state’s housing finance agency website or consult with local real estate agents and mortgage lenders experienced in these programs. Lenders have information on DPA options that can be paired with their mortgage products. Understanding the specific terms of any DPA, such as repayment obligations or residency requirements, is important before committing to a program.

Additional Costs and Considerations

While securing a home with a zero-down payment option can reduce upfront cash, prospective buyers should prepare for other financial obligations inherent in homeownership.

Mortgage insurance is a common requirement for many loans with lower down payments, protecting the lender against financial loss if a borrower defaults. For conventional loans where the down payment is less than 20% of the home’s purchase price, private mortgage insurance (PMI) is required. The cost of PMI is added to the monthly mortgage payment and continues until a certain amount of equity is built in the home.

Federal Housing Administration (FHA) loans, which allow for down payments as low as 3.5%, require both an upfront mortgage insurance premium (MIP) and an annual MIP. The upfront MIP is a percentage of the loan amount, often financed into the loan, while the annual MIP is paid monthly for the life of the loan or for a specific period. USDA loans include an upfront guarantee fee and an annual fee, while VA loans have a funding fee. These forms of mortgage insurance or fees are standard components of certain loan types.

Closing costs represent another expense that buyers pay at closing. These costs cover services and fees associated with the mortgage transaction and transfer of property ownership. Common closing costs include lender fees for loan origination, appraisal fees to determine the home’s value, inspection fees to assess the property’s condition, and title insurance fees to protect against defects in the property’s title.

Additional closing costs may include attorney fees, recording fees to record the property transfer, and prepaid expenses. Prepaid expenses include several months of property taxes and homeowners insurance premiums, collected at closing to establish an escrow account. These costs range from 2% to 5% of the loan amount, varying by location and loan type. While some DPA programs or lender credits can help offset these expenses, buyers anticipate needing funds for these charges.

An escrow account is established to manage ongoing property taxes and homeowners insurance payments. Lenders typically require these accounts to ensure that these obligations are met, protecting their investment in the property. A portion of the monthly mortgage payment is deposited into this account by the borrower, and the lender uses these funds to pay the property tax bills and insurance premiums when they become due. This system helps homeowners budget for these recurring costs.