No Down Payment for First-Time Homebuyers

Considering buying a home for the first time often has buyers wondering how much they’ll need to save up for the down payment. However, having no down payment for first-time homebuyers is an option, if borrowers choose specific types of loans. Otherwise, it may be worth considering low down payment loans instead.

Many first-time homebuyers are under the impression that they must save up 20% of the total home cost for a down payment. This is only true if you are planning on taking out a conventional loan and wish to avoid private mortgage insurance fees. In fact, according to the National Association of Realtors, the average down payment for a home in 2023 was 8%.

Among the many questions that enter your mind, you could probably add: “can I buy a house with no money down?” Indeed—but read the details to find out which loan programs you could qualify for, and which loan programs may make homeownership more accessible with smaller down payment options.

What is a No Down Payment Mortgage?

A no down payment mortgage means that you don’t put any money down upfront when you take out a home loan. You’ll essentially be taking the home sale price and taking out a loan for the same amount or a combination loan, 1st and 2nd mortgage, which equals the purchase price.

Benefits for First-Time Homebuyers

One of the biggest hurdles for buying a home is trying to save up a chunk of money to use for a down payment on top of your regular daily expenses. If you can secure a mortgage without a down payment, you could begin the home buying process sooner than you think.

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Types of No Down Payment Mortgages Available

The two most popular mortgage types available with no down payment requirement are government-backed loan programs with specific requirements. These no down home loans are the VA home loan and the USDA home loan. Depending on state funding and programming near you, there may also be down payment assistance and grant programs that can cover some or all of your down payment for all types of loans.

VA Loans

If your loan amount is higher than $144,000 and you’re a qualified borrower, you can purchase a home without a down payment with a VA loan. No down payment required is just one benefit of a VA loan. They usually have lower interest rates than conventional products, which help lower monthly payment amounts and the overall cost of interest paid over the life of the loan. Additionally, no monthly private mortgage insurance (PMI) is required, helping you save up to hundreds of dollars every month, helping keep your mortgage costs low. Plus, more leniency is given with VA loans around credit scores and financial history, and closing costs are typically reduced.

Keep in mind, there are specific qualifications for VA loans. Borrowers must:

• Meet minimum active-duty service requirements or be the surviving spouse of a veteran or military member

• Find a home that meets minimum property requirements with water, sewer, heat and cooling

• Meet lender’s credit and debt-to-income ratio requirements

RELATED: 10 Facts You May Not Know about VA Loans

USDA Loans

USDA loans are another no down payment option for first-time homebuyers. This loan program, which is backed by the government, is designed specifically to help middle to lower-income families in rural areas purchase a home. In addition to no down payment requirement, USDA loans also allow the borrower to purchase a home with possibly lower interest rates, lower PMI costs, and USDA loans allow sellers to contribute to closing costs. Additionally, USDA loans don’t require as high of credit, so borrowers with less-than-perfect credit can qualify for the loans more easily.

USDA loans can have a fixed or adjustable rate, and have a few requirements that borrowers must adhere to in order to be eligible. Requirements vary state by state, so be sure to check with your local lender to find out which properties are eligible, as well as what the lender’s income, credit, DTI, and financial history requirements may be.

RELATED: 5 Benefits of USDA Loans

Advantages of No Down Payment Mortgages

A no down payment mortgage offers plenty of advantages. If a borrower were to attempt to save 20% for a down payment, they may be waiting for years to save up that kind of capital. Instead, purchasing a home with no down payment may help build equity (or home value) sooner. Plus, homeownership next year is more attractive than homeownership in 10 years, especially if you choose a 30-year mortgage.

If you opt for a no down payment mortgage, you’ll also have some financial flexibility for other expenses—maybe you need to make some updates to the home. This frees up your cash in order to install new carpet, put on a fresh coat of paint, or pay for roof repairs.

Alternatives to No Down Payment Mortgages

For a first time home buyer, no down payment required is appealing. However, it’s not always an option if you don’t qualify for USDA loans or for VA loans. Thankfully, there are a few options that offer a low-down payment alternative to no down payment mortgages.

FHA

An FHA loan is another government-backed loan product. The down payment is 3.5% minimum, and often requires a credit score of 580 or higher. The home you’re purchasing with the loan must be your primary residence and must pass home appraisal standards and FHA livability standards. Additionally, you’ll need to move in within 60 days of closing.

An added benefit of FHA loans, besides the low down payment requirement, is that PMI may not be forever. If your down payment is at or higher than 10% you’ll only need to pay PMI for 11 years. However, if your down payment is lower (less than 10% of the home price) PMI will need to be paid for the life of the loan, unless you refinance with 20% equity.

Fannie Mae HomeReady and Freddie Mac Home Possible

These two home loan options both require a small 3% down payment minimum. The Fannie Mae HomeReady loan allows the down payment to be sourced from gifts and grants. Both loans make a $2500 grant available to borrowers who are earning 50% or less of the area’s median income.

As far as requirements: one borrower must have a credit score of at least 620 and may not make more than 80% of the area’s median income.

Down Payment Assistance Options

If you’re still looking for a way to get help with your down payment, there are a few different options, each with requirements, qualifications, and challenges of their own.

Silent second mortgage.
In order to afford a down payment, you might take out a silent second mortgage. This allows you to make a down payment to secure a loan. This silent second mortgage often comes from Fannie Mae or Freddie Mac loan programs.

First-time home buyer assistance programs.
Grants for first-time home buyers are available. Ask your local PacRes Mortgage Loan advisor to point you in the direction of your state-specific programs to see what you may be eligible for.

Down payment assistance.
Down payment assistance, or DPA, can come in a variety of shapes and sizes. Some are grants. Some are forgivable loans. Others are zero-interest loans. Keep in mind: eligibility is highly specific, and a significant amount of your financial information will be needed to prove your qualification and need.

Before you look into a no down payment mortgage, consider the qualifications for each. Explore down payment assistance programs. Use a mortgage payment calculator to see what’s feasible. Work on boosting your credit score, the higher your credit score the better your interest rate will be. Before you apply, check in with a lender to see what kind of loans are available to you for zero-down or low down payment mortgages.

If you’re ready to buy your first home with no down payment, learn more about your options and start your journey with PacRes Mortgage today. We’ll be happy to help you explore your eligibility and determine the best loan product for you.