How to Buy a House With No Down Payment

Buying a home often presents a significant financial challenge due to the requirement of a down payment. This initial lump sum can be a substantial hurdle for many prospective homeowners. While a large down payment is traditionally seen as a necessity, various avenues exist that can help reduce or even eliminate this upfront cost. Understanding these alternative paths can make homeownership more accessible.

Government-Backed Zero Down Payment Loans

Government-backed loan programs offer distinct opportunities for eligible individuals to purchase a home without requiring a down payment. These programs are designed to support specific populations or promote homeownership in designated areas, often featuring more flexible qualification criteria than conventional loans.

VA Loans

The U.S. Department of Veterans Affairs (VA) guarantees loans designed to help service members, veterans, and eligible surviving spouses achieve homeownership. A notable benefit of VA loans is the absence of a down payment requirement for most borrowers. Eligibility generally requires specific periods of active service during wartime or peacetime, or six years of service in the National Guard or Reserves. Spouses of service members who died while serving or from a service-connected disability may also qualify. While the VA does not impose a minimum credit score, individual lenders typically require a FICO score of at least 620.

VA loans also forgo the requirement for private mortgage insurance (PMI). However, most borrowers are subject to a one-time VA funding fee. This fee typically ranges from 0.5% to 3.3% of the loan amount, depending on factors such as prior VA loan usage, down payment size, and loan type. For instance, a first-time VA loan user with no down payment might pay a funding fee of 2.15%, while subsequent users without a down payment could face a 3.3% fee. The funding fee can either be paid upfront at closing or financed into the loan amount, increasing the overall loan balance.

USDA Loans

The U.S. Department of Agriculture (USDA) offers loan programs aimed at promoting homeownership in designated rural areas. USDA loans allow eligible borrowers to purchase homes with no down payment. The primary eligibility criteria for these loans involve both property location and borrower income.

Properties must be located within specific USDA-designated rural areas, which can include many suburban communities with populations typically under 35,000 residents or those considered rural in character. Borrowers must also meet income limits. For 2025, the standard income limit for a 1-4 member household is generally around $119,850, and for a 5-8 member household, it is approximately $158,250 in most areas, though these limits can vary by location. Most lenders offering USDA loans typically require a minimum credit score of around 640.

Unlike conventional loans, USDA loans do not require monthly PMI. Instead, they include two types of guarantee fees: an upfront fee and an annual fee. The upfront guarantee fee is typically 1% of the loan amount and can be rolled into the loan. The annual fee is usually 0.35% of the outstanding principal balance, paid monthly as part of the mortgage payment.

Down Payment Assistance Programs

Down Payment Assistance (DPA) programs provide financial aid designed to help homebuyers cover their down payment and, in many cases, closing costs. DPA can significantly reduce the out-of-pocket expenses associated with purchasing a home, making homeownership more attainable.

DPA comes in various forms, each with distinct repayment structures.
Grants: Represent funds that do not need to be repaid.
Second Mortgages: Can be structured in several ways. Some are “silent” or deferred, meaning no payments are required until the first mortgage is paid off, the home is sold, or refinanced.
Forgivable Loans: A type of second mortgage that may be fully or partially forgiven if the homebuyer meets specific conditions, such as living in the home for a set number of years.
Low-Interest Loans: Function as second mortgages with more affordable interest rates.

These assistance programs are offered by a diverse range of entities.
State Housing Finance Agencies (HFAs): A primary source, providing programs tailored to residents within their states.
Local Government Initiatives: Including city and county programs.
Non-Profit Organizations: Frequently administer DPA programs.
Private Mortgage Lenders: Offer their own down payment assistance options.

Eligibility for DPA programs typically involves several common requirements. Many programs are geared towards first-time homebuyers, generally defined as someone who has not owned a home in the past three years. Income limits are a standard criterion, with household income needing to fall below a certain percentage of the area median income.

A minimum credit score, often around 620 or higher, is usually required by lenders and assistance programs. Furthermore, many DPA programs mandate the completion of a homebuyer education course. The property being purchased must also typically serve as the buyer’s primary residence.

Other Strategies for Minimizing Upfront Homebuying Costs

Beyond direct zero down payment loans and assistance programs, several other strategies can significantly reduce the amount of cash a homebuyer needs at closing.

Gift Funds

One common strategy involves using gift funds for a down payment. Family members, such as parents, grandparents, or siblings, are typically considered acceptable sources for these monetary gifts. Lenders generally require a gift letter, a signed document from the donor stating that the funds are a gift with no expectation of repayment. For tax purposes, in 2025, an individual can gift up to $19,000 per recipient without incurring gift tax liability or requiring the donor to file a gift tax return. Married couples can effectively double this amount, gifting up to $38,000 per recipient. Amounts exceeding these annual exclusion limits must be reported by the donor to the Internal Revenue Service (IRS) on a gift tax return.

Lender Credits

Lender credits offer another way to reduce upfront costs by having the mortgage lender cover a portion or all of the closing costs. In exchange for these credits, the borrower typically accepts a slightly higher interest rate on the mortgage loan. This trade-off means paying less cash at closing but potentially incurring higher monthly mortgage payments and greater interest over the life of the loan.

Seller Concessions

Seller concessions provide an avenue where the home seller agrees to pay a portion of the buyer’s closing costs. The amount a seller can contribute is subject to limits, which vary by loan type.
Conventional Loans: Typically allow seller concessions of 3% to 9% of the sales price, depending on the buyer’s down payment amount.
FHA Loans: Generally permit up to 6% of the sales price in seller concessions.
VA Loans: Offer flexibility, allowing sellers to cover all reasonable and customary closing costs and potentially an additional 4% for certain expenses.
USDA Loans: Also permit seller contributions of up to 6% of the sales price toward the buyer’s closing costs.