Can You Buy a House With No Money Down?

Buying a home often presents a financial hurdle, as many believe a substantial down payment is always necessary. However, diverse home financing options exist that challenge this assumption, making homeownership accessible to individuals with limited cash reserves. This article explores strategies and programs that facilitate purchasing a home with minimal or no initial down payment.

Understanding “No Money Down”

The phrase “no money down” refers to the absence of a traditional upfront down payment. While specific loan programs can minimize or eliminate a down payment, other upfront costs, known as closing costs, usually remain. Closing costs include fees for finalizing a mortgage and transferring property ownership, such as appraisal fees, title insurance, attorney fees, and loan origination fees. These costs typically range from 2% to 5% of the loan amount. Buyers generally need to account for closing costs, though assistance programs can sometimes help.

Government-Backed Loan Programs

Government-backed loan programs make homeownership more attainable by reducing or eliminating down payment requirements. These programs offer flexible eligibility criteria for different segments of the population.

Federal Housing Administration (FHA) loans

FHA loans are a popular option for first-time homebuyers or those with less-than-perfect credit. These loans permit down payments as low as 3.5% of the purchase price for borrowers with a credit score of 580 or higher. A 10% down payment is required for credit scores between 500 and 579. All FHA loans require mortgage insurance premiums (MIP), including an upfront premium of 1.75% of the loan amount and an annual premium that typically ranges from 0.15% to 0.75%. The upfront MIP can be financed into the loan, and the annual MIP is paid monthly.

VA loans

VA loans, guaranteed by the Department of Veterans Affairs, require no down payment for eligible service members, veterans, and surviving spouses. Applicants must meet service requirements and obtain a Certificate of Eligibility (COE). Private mortgage insurance (PMI) is not required. Most borrowers pay a one-time VA funding fee, which ranges from 0.5% to 3.3% of the loan amount. This fee can be financed into the loan, and certain individuals, such as those receiving VA compensation for service-connected disabilities, may be exempt.

USDA loans

USDA loans, backed by the U.S. Department of Agriculture, offer a 0% down payment option for properties in eligible rural and some suburban areas. These loans are for low- to moderate-income households, with income limits set at $119,850 for 1-4 member households and $158,250 for 5-8 member households in most areas for 2025. Property eligibility is determined by location, generally areas with populations of 20,000 or fewer. The property must be used as the borrower’s primary residence and meet safety and structural standards.

Down Payment and Closing Cost Assistance

Beyond government-backed loan programs, various assistance programs help homebuyers cover down payments and closing costs, reducing upfront cash requirements. These programs often complement primary mortgages, making homeownership more accessible.

Assistance comes in several forms. Grants are non-repayable funds for down payment or closing costs. Second mortgages can be low-interest loans, deferred-payment loans where payments are postponed, or forgivable loans that do not require repayment if conditions, such as living in the home for a set number of years, are met.

Sources for these assistance programs include state and local housing finance agencies (HFAs), non-profit organizations, and employer-assisted housing initiatives. Many programs pair with conventional or government-backed loans like FHA, VA, or USDA loans, allowing borrowers to combine benefits for minimal out-of-pocket expenses. Eligibility depends on factors such as household income limits, first-time homebuyer status, and property location.

Key Financial Considerations

Even with low or no money down options, lenders assess a borrower’s financial readiness for long-term affordability and repayment. Several financial factors influence loan approval, regardless of the initial cash outlay.

Credit Score

A strong credit score indicates a borrower’s reliability in managing financial obligations and influences loan approval and interest rates. Minimum credit scores vary by loan type and lender. Most conventional loans require a score of at least 620, while FHA loans can be approved with scores as low as 500 or 580 depending on the down payment. A score of 740 or higher can lead to more favorable loan terms.

Debt-to-Income (DTI) Ratio

Lenders also examine a borrower’s debt-to-income (DTI) ratio, which compares monthly debt payments to gross monthly income. This ratio helps lenders determine if a borrower has sufficient income after covering existing debts to manage new mortgage payments. A DTI ratio of 43% or lower is preferred for many loan programs. Some, like FHA loans, allow for higher ratios, up to 50% or more, especially with compensating factors such as strong credit or substantial savings.

Stable Income and Ongoing Costs

A stable income and consistent employment history demonstrate a borrower’s ability to make mortgage payments. Lenders prefer to see at least two years of steady income in the same industry or job field. Beyond the initial purchase, prospective homeowners must also consider ongoing costs of homeownership, including property taxes, homeowners insurance, and maintenance expenses. These recurring costs are factored into the overall affordability assessment by lenders.