Can You Buy a Home with Zero Down Payment? A First-Time Homebuyers Guide
Published June 17, 2022
For first-time homeowners, saving up for the down payment is usually the lengthiest step in the home buying process. The average buyer needs years to save up their down payment, but waiting this long can feel extremely frustrating. If you feel financially ready to buy a house, you might wonder whether it's possible to be approved as a first-time homebuyer no down payment.
Fortunately, there are a couple mortgage programs that allow a first-time homebuyer no down payment under specific circumstances. You also may have some other options that can greatly reduce the amount you'll pay out-of-pocket for your down payment. Understanding which zero down first-time homebuyer programs are available can help you minimize your down payment and achieve homeownership earlier than expected.
Is it possible to become a first-time homebuyer with no down payment?
In certain circumstances, it is possible to be approved as a first-time homebuyer no down payment. A few government-backed mortgage options, such as VA loans and USDA loans, allow a first-time homebuyer 0 down payment if they meet the requirements outlined by the program.
Other homeowners may qualify for a down payment assistance program, which is a grant or loan that covers part or all of your down payment. There are a wide variety of programs on the local, state, and federal levels, but many are reserved for people who meet specific income requirements, live in designated areas, or work in certain professional fields.
Minimum down payment requirements for first-time buyers
If you're approved as a first-time homebuyer with no down payment, you can put 0% down when you close on your home. However, most buyers do need to make at least a small down payment when they purchase their first properties. The first-time homebuyer minimum down payment varies depending on your finances and the type of mortgage you use.
One of the most popular financing options for first-time buyers is an FHA loan, which is offered by a traditional mortgage lender but backed by the government. If you have a credit score of at least 580, you can be approved for an FHA loan with a down payment as low as 3.5%. If your credit score is lower than 580, you may still be approved for the mortgage with a higher down payment.
Another possibility is a Fannie Mae HomeReady mortgage or a Freddie Mac Home Possible mortgage. Both of these options are available to first-time buyers with low or moderate incomes, so you must earn less than 80% of your area's median income to be approved. Both programs have a first-time homebuyer minimum down payment of 3%.
Loan options for a first-time homebuyer no down payment
While there are numerous ways for first-time homeowners to make a fairly small down payment, your options for becoming a first-time homebuyer no down payment are more limited. The two main programs that allow no down payment are VA loans and USDA loans.
VA loans typically offer competitive interest rates because they're backed by the government. To be approved for a VA loan as a first-time homebuyer no down payment, you must meet one of these service requirements:
90 consecutive days of active service during wartime
181 consecutive days of active service during peacetime
Six years of service in the National Guard or Reserves
Discharged because of a service-connected disability
Spouse of a service member who died in the line of duty
The other first-time homebuyer no down payment option is a USDA loan. These loans require no down payment and have very favorable terms as they're designed to encourage new homeowners to purchase property in rural or underdeveloped areas. To be approved, you must buy a single-family home in an eligible area, and your income must be less than 115% of the median income in your area.
Other costs when buying a home
Even if you're approved as a first-time homebuyer no down payment, you should still anticipate other costs when you buy a home. Closing costs include the broker fee, underwriting fee, title insurance, appraisal, inspection, and a wide variety of other fees and expenses that you may have to cover before you become the official owner of the home.
The total amount can vary significantly, but you should expect to pay several thousand dollars in closing costs. VA loans may have lower closing costs than average because borrowers are exempt from certain costs, but most USDA borrowers are required to pay all closing costs. You can roll these expenses into your mortgage balance, but this will increase your monthly payment.
You should also factor in the other costs associated with purchasing a new home. Moving can be very expensive, especially if you're relocating to a new city or state. As a result, you should budget a generous amount of money for moving costs. Additionally, your home may need some immediate repairs, which could result in major out-of-pocket expenses.
How to reduce your expenses with down payment assistance
Another way to become a first-time homebuyer no down payment is to be approved for down payment assistance. Down payment programs can be a great resource for prospective buyers with low or moderate incomes who are ready for homeownership but are struggling to save up a down payment.
One popular federal option is the Chenoa Fund, which provides FHA mortgage borrowers up to 3.5% of their new home's value to cover the down payment. Applicants must meet some specific requirements to be approved for this program, so you should consult with a mortgage expert to discover whether you qualify. A mortgage consultant can also connect you with local or state resources that may be relevant to your situation.
Buying a home with zero down payment may not be a possibility for most buyers, but there are a few mortgage programs that do approve borrowers with 0% down. Many first-time homebuyers do get approved for a mortgage with a small down payment, so you may not need to save up as much as you think. You can consult with one of our mortgage consultants to learn more about your options.