How to Buy a Home With No Down Payment

For many, the dream of homeownership often comes with the hurdle of a substantial down payment, often 20% of the home’s purchase price. This can make homeownership seem out of reach for many. However, homeownership is possible with little to no down payment. Various programs and strategies exist to help aspiring homeowners.

Government-Backed No Down Payment Loan Programs

Several government-backed loan programs are designed for zero down payment homeownership, making them accessible. These are insured or guaranteed by federal agencies, reducing risk for lenders.

VA Loans

VA loans benefit service members, veterans, and eligible surviving spouses, guaranteed by the U.S. Department of Veterans Affairs. They require no down payment, allowing 100% financing. PMI is not required, unlike conventional loans with less than 20% down. Instead, a one-time VA funding fee (0.5% to 3.3% of the loan amount) applies, which can often be rolled into the loan, minimizing upfront costs.

Eligibility requires a Certificate of Eligibility (COE) verifying military service. Service requirements include 90 days active service during wartime, 181 days during peacetime, or six years in the National Guard or Reserves. Surviving spouses may also qualify if the service member died in service or from a service-connected disability. Borrowers can obtain their COE through their lender, online, or by mail.

Properties financed with VA loans must meet Minimum Property Requirements (MPRs), ensuring safety and structural soundness. MPRs cover functional utilities, a sound roof, and proper drainage. While the VA does not mandate a minimum credit score, lenders typically require a FICO score of 620 or higher, and sufficient residual income.

USDA Loans

USDA loans, backed by the U.S. Department of Agriculture, are a zero down payment option for rural and some suburban areas. They are available to low-to-moderate-income families. Property must be in a USDA-designated rural area, verifiable with online eligibility maps. USDA’s definition of “rural” is often broader than commonly perceived, including many small towns and less dense areas.

Eligibility is based on household income limits, varying by location and household size. For 2025, standard income limits are $119,850 for 1-4 member households and $158,250 for 5-8 member households in most areas, though limits can be higher in high-cost regions. Similar to VA loans, USDA loans include specific fees instead of mortgage insurance. A one-time upfront guarantee fee (1% of the loan amount) can be rolled into the loan. An annual fee of 0.35% of the outstanding principal balance is paid monthly.

While VA and USDA loans require no down payment, other costs are involved. Closing costs (appraisal fees, loan origination fees, title insurance) are separate from the down payment and must be covered. These costs range from 2% to 5% of the loan amount and are typically due at closing.

Down Payment Assistance Programs

Down Payment Assistance (DPA) programs help cover upfront costs, allowing individuals to purchase a home with minimal out-of-pocket expenses. DPA can bridge this gap even if a primary mortgage requires a small down payment. These programs are diverse in structure and source, providing flexible support to eligible homebuyers.

DPA comes in several forms, each with distinct repayment terms:
Grants do not need to be repaid, providing direct financial relief.
Forgivable loans are gradually forgiven over a specified period (typically five to ten years) as long as the homeowner meets certain conditions, such as continuous occupancy.
Deferred loans function as second mortgages with no monthly payments, with the full amount becoming due only upon the sale, refinance, or payoff of the primary mortgage.
Low-interest loans are second mortgages repaid in installments alongside the primary mortgage, but at a more favorable interest rate.

DPA programs originate from state housing finance agencies (HFAs), local governments, and non-profit organizations. Some employers also offer DPA. Many HFAs offer multiple DPA programs, often requiring use with a first-lien mortgage product offered by the HFA.

Eligibility criteria for DPA programs include income limits, ensuring assistance for low-to-moderate-income households. These income thresholds are based on a percentage of the area median income and vary by household size and location. Many DPA programs are for first-time homebuyers (individuals who have not owned a home in the past three years). Some programs may extend eligibility to repeat homebuyers, particularly in targeted areas.

Common requirements include minimum credit score thresholds (typically around 620 or higher) and completion of a homebuyer education course. These courses provide knowledge on budgeting, mortgage basics, and home maintenance. DPA is commonly combined with FHA, VA, USDA, and conventional loans, allowing borrowers flexibility in financing choices. To locate DPA programs, research state HFA websites, local government housing initiatives, or online resources.

Navigating the Home Purchase Process Without a Down Payment

Purchasing a home without a traditional down payment requires navigating procedural steps and understanding financial requirements. Each phase, from initial loan assessments to closing, plays a role in securing homeownership.

Pre-qualification and Pre-approval

Initial steps involve understanding borrowing capacity, typically through pre-qualification and pre-approval. Pre-qualification offers a preliminary estimate of borrowing based on self-reported financial information, providing a general idea of affordability.

Pre-approval is a more thorough process, where a lender conditionally commits to a loan amount after verifying financial information. For pre-approval, borrowers typically provide identification, recent pay stubs, W-2 forms (past two years), bank statements, and tax documents. Self-employed individuals may need business tax returns, profit-and-loss statements, and balance sheets. A pre-approval letter strengthens a buyer’s offer by demonstrating to sellers that their finances have been reviewed.

Finding a Lender

Finding a lender experienced in no-down-payment loans and DPA programs is crucial. Not all lenders specialize in these financing options. Seek loan officers familiar with VA, USDA, and DPA offerings; their expertise can streamline the process and help secure favorable terms. This specialized knowledge can make a difference in navigating program-specific requirements and maximizing available benefits.

Understanding Closing Costs

No down payment loans eliminate the upfront equity requirement, but borrowers are still responsible for closing costs. These are fees and expenses necessary to finalize the mortgage and transfer property ownership. Common closing costs include loan origination fees, appraisal fees, title insurance, recording fees, and escrow account setup. These costs typically range from 2% to 5% of the loan amount.

Strategies exist to help cover these costs. Seller concessions involve the seller agreeing to pay a portion of the buyer’s closing costs, negotiated as part of the purchase agreement. Limits on seller concessions vary by loan type; VA loans cap them at 4% of the loan amount, while USDA loans allow up to 6% of the sales price.

Another option is lender credits, where the lender provides money to cover closing costs in exchange for a slightly higher interest rate. While this increases the long-term cost of the loan, it reduces immediate cash needed at closing. Some DPA programs can also cover closing costs in addition to the down payment.

The Application and Underwriting Process

Once pre-approved and a property is identified, the loan application process begins. This involves submitting necessary documentation, including updated pay stubs, tax returns, and bank statements, for a comprehensive financial review. The mortgage underwriting phase is where the lender assesses the borrower’s credit history, income, assets, and the property to determine the risk of issuing the loan.

During underwriting, an appraisal of the property is ordered to confirm its market value and support the loan amount. The appraiser evaluates the home’s condition, size, location, and comparable sales. If the appraisal comes in lower than the purchase price, it may necessitate renegotiation or require the buyer to cover the difference. Underwriters also conduct a title search to ensure no outstanding claims or liens against the property. This review ensures all financial aspects and property conditions align with lending guidelines before final loan approval.

Home Search and Offer Strategy

Working with a real estate agent experienced in no-down-payment loans is beneficial. These agents understand the requirements of VA and USDA loans, such as property eligibility and minimum property standards, and can help identify suitable homes. They can guide buyers toward properties that meet program criteria, avoiding issues later in the process.

When structuring an offer, consider requesting seller concessions to help offset closing costs, especially in a buyer’s market. A knowledgeable agent can advise on appropriate concession amounts and negotiate effectively with the seller. This approach can reduce the amount of cash required at closing, making homeownership more attainable for those utilizing no-down-payment programs.