How to buy a home with little or no down payment
Buying a home with no down payment may sound too good to be true, but it is possible, depending on the loan you qualify for and where you choose to live. Down payment requirements vary by mortgage program and can start as low as zero percent, which can also be referred to as “100% financing.” For many homebuyers, using a low or no down payment mortgage helps speed up their timeline to homeownership.
Homebuyers rank saving for a down payment as one of the hardest parts of homebuying. Younger homebuyers, ages 25 to 33, find down payment savings to present the biggest challenge. Exploring options like low and no down payment mortgages, grants/down payment assistance and gift funds could help ease some of these upfront costs.
How to buy a home with little or no down payment
Several loan programs may help reduce or eliminate a down payment for homebuyers who qualify:
1. USDA Loans
Eligibility: Low- to moderate-income buyers in rural or some suburban areas
Down Payment: 0%
Government-backed: Yes
Features:
Low interest rates
May offer grant programs
2. VA Loans
Eligibility: Veterans, active-duty service members, reservists, and surviving spouses
Down Payment: 0%
Government-backed: Yes
Features:
Competitive interest rates
No private mortgage insurance (PMI) required
3. Arrive Home™
Eligibility: All homebuyers who meet income requirements
Down Payment: 0%
Government-backed: No
Features:
Down payment assistance
No minimum borrower contribution
4. Zero Down Program
Eligibility: All homebuyers
Down Payment: 0%
Government-backed: No
Features:
Down payment assistance
No minimum borrower contribution
5. State Housing Loans
Eligibility: Low- to moderate-income buyers
Down Payment: Low down payment or assistance available
Government-backed: May be
Features:
Vary by state
Often offer additional benefits
6. HomeReady® and Home Possible®
Eligibility: Low- to moderate-income buyers
Down Payment: As low as 3%
Government-backed: Yes
Features:
Down payment assistance
Homebuyer education required
7. Conventional Loans
Eligibility: All homebuyers
Down Payment: As low as 3%
Government-backed: No
Features:
Wide range of loan terms
Competitive interest rates
8. FHA Loans
Eligibility: All homebuyers
Down Payment: As low as 3.5%
Government-backed: Yes
Features:
Lower credit score requirements
More relaxed income guidelines
A closer look at funding your down payment
Even with a low-down payment mortgage, you'll still need to cover some upfront costs. But the good news is, you don't have to come up with the entire amount yourself.
There are multiple ways to fund a down payment on a house:
1. Personal Savings
How it works: Money saved over time
Considerations: Requires long-term planning and financial discipline
2. Grants
How it works: Financial assistance from nonprofits or public institutions
Considerations: Eligibility criteria can vary depending on the program
3. State Down Payment Assistance
How it works: Programs offered by state governments
Considerations: Income and credit score requirements may apply
4. Employer Assistance
How it works: Benefits provided by your employer
Considerations: Availability depends on your employer’s policies
5. Gifts
How it works: Money given by family or friends
Considerations: Gift rules may apply for tax purposes; amounts may be limited
6. Home Equity
How it works: Selling your current home to fund your next down payment
Considerations: May require selling before buying, which could impact your current mortgage
7. Bridge Loan
How it works: Use equity from your current home to buy your next one
Considerations: Lets you purchase a new home without selling first, but may come with higher costs or risks
Before you accept a financial gift, make sure you talk to your loan officer about it. They can walk you through your loan program’s requirements and explain the guidelines for receiving gifted funds. Nearly 25 percent of recent younger Millennials used gifted funds or a loan from a loved one for a down payment.
Are you eligible for down payment assistance?
If you don’t qualify for a no down payment mortgage, you may be able to reduce your down payment with the help of DPA, or down payment assistance:
DPA may be available to both first-time and repeat buyers, depending on the program.
In fact, close to 40 percent of all DPA programs are open to repeat homebuyers.
If you previously owned a home longer than three years ago, you may still be considered a first-time homebuyer.
Over 2,000 DPA programs exist nationwide. Many supply thousands of dollars in aid to homebuyers who qualify. DPA typically comes in the form of a loan or grant that doesn’t have to be paid back. DPA loans may be forgivable (won’t need to be paid back after a certain number of years), deferred or taken on as a second mortgage. These programs are often compatible with low down payment mortgages.
You can search for down payment assistance in your city, county and state or ask your loan officer which programs you may qualify for.
Want to reduce your down payment?
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The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.