Can You Get a 100% Mortgage With No Down Payment?

Many prospective homeowners wonder if it is possible to purchase a house without making a traditional down payment. A 100% mortgage, also known as a 100% Loan-to-Value (LTV) mortgage, is a financial arrangement where the loan covers the entire purchase price of a home, requiring no initial cash outlay from the buyer. While such loans were more prevalent in past housing markets, their availability has changed significantly over time.

Understanding 100% LTV Mortgages

Loan-to-Value (LTV) is a ratio lenders use to assess mortgage risk. It is calculated by dividing the loan amount by the property’s appraised value or purchase price, whichever is lower, then multiplying by 100. For instance, a $200,000 loan on a $250,000 home results in an 80% LTV. A 100% LTV means the borrower finances the entire purchase price, holding no initial equity.

Since the mid-2000s, the availability of 100% LTV mortgages from conventional lenders has shifted considerably. Lenders perceive higher LTV loans as carrying greater risk due to the lack of borrower equity, which could lead to higher losses if the borrower defaults.

Current Pathways to Low or No Down Payment Mortgages

Despite the general reduction in 100% LTV offerings, several programs and avenues still exist that allow for low or even no down payments, primarily through government-backed initiatives. Each program has specific criteria regarding eligibility and property type.

VA Loans

VA Loans, backed by the U.S. Department of Veterans Affairs, offer eligible veterans, active-duty service members, and some surviving spouses the opportunity to purchase a home with no down payment. To qualify, individuals must meet specific service requirements, such as 90 consecutive days of active service during wartime or 181 days during peacetime. Borrowers also need to obtain a Certificate of Eligibility (COE) and satisfy the lender’s credit and income standards.

USDA Loans

USDA Loans, guaranteed by the U.S. Department of Agriculture, allow 0% down payment for properties located in designated rural areas. Intended for low- and moderate-income individuals and families, eligibility is tied to income limits, which vary by location and household size. The property must be within a USDA-approved rural zone and serve as the primary residence. While no universal minimum credit score exists from the USDA, most lenders generally look for 640 or higher.

FHA Loans

FHA Loans, insured by the Federal Housing Administration, provide a low down payment option, requiring as little as 3.5% of the purchase price. Beneficial for borrowers with lower credit scores or limited savings, a minimum credit score of 580 is required for the 3.5% down payment; 10% down may allow scores between 500 and 579. Gift funds are also permitted for the down payment.

Down Payment Assistance (DPA) Programs

Down Payment Assistance (DPA) Programs are offered by state or local housing authorities, non-profit organizations, and lenders. These programs provide funds as grants, forgivable loans, or deferred-payment loans to cover down payments or closing costs. DPA programs can reduce a borrower’s out-of-pocket expense to zero when combined with other mortgage types. Eligibility depends on factors such as income limits, credit score, and first-time homeowner status.

“Piggyback” loans

“Piggyback” loans involve a second mortgage taken simultaneously with the primary mortgage to cover part of the down payment. A common structure is an 80/10/10 loan: 80% first mortgage, 10% second mortgage, and 10% buyer down payment. The primary purpose is often to avoid Private Mortgage Insurance (PMI) on the main loan, required if the primary mortgage LTV exceeds 80%. Though less common now, some lenders still offer these.

Some private lenders or community development financial institutions may offer niche 0% or low down payment programs. These programs are sometimes tailored for specific professions, such as healthcare professionals, or are part of community revitalization efforts. Such specialized programs usually have strict eligibility criteria and may be limited in scope or geographic availability.

Key Considerations for Low Down Payment Loans

Low or no down payment loans can facilitate homeownership, but they come with important financial implications. These impact the overall cost, risk, and financial flexibility.

Mortgage insurance

Mortgage insurance is a requirement for loans with high LTVs, providing protection to the lender in case of default. For conventional loans with less than a 20% down payment, Private Mortgage Insurance (PMI) is required, adding to the monthly payment. For FHA loans, borrowers pay both an upfront Mortgage Insurance Premium (MIP) of 1.75% of the loan amount, which can be financed, and an annual MIP (typically 0.55% of the loan balance) paid monthly. FHA MIP duration depends on the initial down payment; less than 10% down means MIP is paid for the entire loan term. VA loans are an exception, not requiring mortgage insurance.

Interest rates

Interest rates can sometimes be slightly higher for loans with higher LTVs compared to those with substantial down payments. Lenders may charge a higher rate to compensate for the increased risk associated with lending a larger percentage of the property’s value. This means that while the initial cash outlay is reduced, the total cost of the loan over its lifetime might be greater due to a higher interest burden.

Equity accumulation

Equity accumulation starts lower with 0% or low down payment. With little initial equity, it takes longer to build significant ownership. Limited equity affects financial flexibility, making it challenging to access home equity lines of credit or refinance in early years.

Financial risk

Financial risk, including “underwater” mortgages, is heightened with low down payment loans. An underwater mortgage occurs when the loan balance exceeds the home’s market value. This happens if property values decline, leaving the homeowner owing more than the home is worth. Being underwater complicates selling or refinancing, and offers less financial buffer in economic downturns.

Strong credit scores and manageable debt-to-income (DTI) ratios are important for qualification, even with low or no down payment programs. Lenders assess repayment ability by evaluating their DTI, which compares monthly debt payments to gross monthly income. While specific DTI limits vary by loan type and lender, a common threshold for conventional loans is often around 36% for total debt, with FHA and VA loans sometimes allowing higher ratios, such as up to 43% or even 50% in some cases. A favorable credit history demonstrates financial responsibility and improves the likelihood of loan approval.