Buying a House with No Money Down: How to Do It

How to Buy a House with No Money Down

To buy a home with no money down, here’s what the process could look like: 

1. Find a lender that offers no-down-payment loan options. Freedom Mortgage offers both VA and USDA loans, which often don’t require you to put any money down and have other benefits for eligible homeowners. 
2. Confirm you’re eligible for the loan with no down payment. VA and USDA loans are both government-backed options that come with unique requirements. 
3. Consider getting preapproved or prequalified to get an estimate of how much of a mortgage you may qualify for. Keep in mind that these estimates often come with a hard credit check, which can have a short-term impact on your credit score.
4. Once you confirm your eligibility and affordability, you can apply for a mortgage and provide the lender with documentation for review. 
5. If approved for the home loan, you’ll receive an offer from the lender with loan terms like your mortgage rate and how long you have to pay back the funds. Once you accept the offer, you’ll move toward closing on your new home. 

Keep in mind that while your mortgage may not require a down payment, you’ll still typically need to have funds for closing costs. For some loans, including government-backed options, you may be able to roll closing costs into your mortgage principal. 

VA Home Loan

VA loans are mortgages backed by the U.S. Department of Veterans Affairs (VA) that usually don’t require a down payment or private mortgage insurance (PMI). These loans are designed to help eligible veterans, active-duty service members, National Guard members, reservists, and qualifying surviving spouses buy or refinance a home. VA loans can offer even more savings, with potentially lower rates, no prepayment penalties, and lower closing costs. 

VA loans are provided by private lenders, like banks or private mortgage companies like Freedom Mortgage. VA loan qualifications include: 

• Certificate of Eligibility (COE): You must have a COE, which is an official document issued by the VA that proves you meet the service requirements to qualify for a VA home loan. You can apply for a COE online or by mail.
• Minimum service time: You may be eligible if you meet at least one of the following:
  • 90 consecutive days of active service during wartime
  • 181 days of active service during peacetime
  • 6 years of honorable service in the National Guard or Reserves
• Home appraisal: The VA requires an official appraisal of the property to determine the fair market value. The lender will then base your loan amount on either the appraised value or the purchase price of the home, whichever is lower.
• Spousal status: You are an unremarried spouse of a service member who either:
  • Died in the line of duty
  • Died from a service-connected disability

Although VA loans have a no-money-down option, most applicants will have to pay a one-time fee called a VA funding fee. This cost will vary based on the loan, if you decide to put money down, and if it’s your first time using the VA benefit.

USDA Home Loan

USDA loans are mortgages backed by the U.S. Department of Agriculture (USDA) that usually don’t require any down payment and have low interest rates and reduced mortgage insurance costs. These loans help people buy homes in eligible rural and suburban areas to promote homeownership in less densely populated areas and support low- or moderate-income households. Here’s how to qualify:

• Income and credit score: Your income must be stable, but also not exceed the area’s median income by too much. Your credit doesn’t need to be perfect, but many lenders, including Freedom Mortgage, look for a score of at least 620 as part of the approval process.
• Citizenship: You must be a U.S. citizen, a U.S. non-citizen national (born in a U.S. territory), or a qualified alien (lawful permanent residents, refugees, etc.)
• Location: The home must be in an eligible rural or suburban area, which you can verify on the USDA’s property eligibility map. Generally, the USDA defines eligible areas as open countryside or towns and suburbs with a population under 35,000.
• Primary residence: The home must be used as a primary residence. You cannot qualify for this loan if you intend to use the property as an investment property, vacation home, second home, or a home for other family members instead of yourself.

Homebuyer Assistance Programs

If costs such as a down payment are delaying your plans for homeownership, many states and communities have homebuyer assistance programs that can help make it more affordable. The U.S. Department of Housing and Urban Development (HUD) has information for homebuyers in all 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands. Visit HUD’s State Information page, and see if there are programs that apply to you.

Low Down Payment Options

If you don’t qualify for a VA or USDA loan, it’s still possible to buy a home with a low down payment. For example, getting an FHA loan could allow you to buy a home with a down payment of as little as 3.5% of the purchase price, depending on your credit score. With a strong financial profile, conventional loans can also be affordable options. 

A steady income, strong credit history, and good credit score could improve your chances of securing a mortgage at a competitive rate.

Should You Buy a House with No Money Down?

Home loans like VA and USDA mortgages can be a great way to become a homeowner if down payment requirements are holding you back. Without having to put down a lump sum of cash up front, borrowers can spread the cost of their home purchase over the life of the loan. 

A down payment reduces the amount you need to borrow, which means a smaller loan balance. Because interest is charged on the amount you borrow, a larger down payment can also reduce the total interest you pay over the life of the loan. While low- or no-down-payment loan options can make homeownership more accessible if you have limited savings, it’s important to understand how borrowing more can increase your loan balance and overall borrowing costs. 

Buying a Home with No Down Payment FAQs

Buying a home with no money down can raise a lot of questions. Here are answers to some of the most common ones.

Can You Buy a House with No Closing Costs?

Closing costs are expenses beyond the down payment, such as appraisals, home inspections, and taxes, that you pay on closing day. Some loans may allow you to add some of your closing costs to your mortgage amount when you buy a home. For example, if you are required to pay the VA funding fee that usually comes with a VA loan, you may be able to add the cost of this fee to your mortgage instead of paying it in cash at closing.

What Is a No-Money-Down Mortgage?

A no-money-down mortgage is a loan that allows you to purchase a property without making a traditional down payment, which is part of the home’s purchase price. Most home loans require some down payment (usually anywhere from 3% to 20%), but some borrowers may have options for putting no money down by qualifying for a VA loan or USDA loan.

What Credit Score Is Needed to Buy a House with No Money Down?

Credit score requirements for no-down-payment loans depend on the type of mortgage and the lender. For example, there’s no government-required minimum VA loan credit score, although lenders may set their own requirements. USDA loans also don’t have a government-established minimum credit score, but many lenders, including Freedom Mortgage, look for a score of at least 620 during the approval process.

Final Thoughts: Understanding the True Cost of Homeownership

A down payment and closing costs are just two aspects of home affordability. For your home purchase to be sustainable in the long run, there are other things to consider, such as your income, mortgage interest rate, other monthly debt payments, property taxes, homeowners insurance, and more. By understanding your loan options and where there are opportunities to save, you can confidently determine when you’re ready to pursue homeownership. 

Compare mortgage options today and get prequalified as a first step toward funding your home purchase.