No-down-payment mortgage

A no-down-payment mortgage allows first-time home buyers and repeat home buyers to purchase property with no money required at closing, except standard closing costs. Other options, including the FHA loan, the HomeReady mortgage, and the Conventional 97 loan, offer low down payment options with a little as 3% down. Mortgage insurance premiums typically accompany low and no down payment mortgages, but not always.

Is a no-down-payment mortgage right for you?

It’s a terrific time to buy a home.

Sales are rising, supply is dropping, and prices have increased in many cities and neighborhoods. Compared to next year, today’s market may look like a bargain.

Furthermore, mortgage rates are still low.

Rates for 30-year loans, 15-year loans, and 5-year ARMs are historically cheap, which has lowered the monthly cost of owning a home.

In this article (Skip to…)

• USDA loans – (0% down)
• FHA loans – (3.5% down)
• The HomeReady Mortgage – (3% down)
• Conventional loan 97 – (3% down)
• VA loans – (0% down)
• Piggyback Loan – (10% down)
• Home buyers don’t need to put 20% down
• PMI Is not evil
• Don’t deplete your entire savings
• Down payment FAQ

The good news about the USDA Rural Housing Loan is that it’s not just a “rural loan” — it’s available to buyers in suburban neighborhoods, too. The USDA’s goal is to help “low-to-moderate income homebuyers,” wherever they may be.

Many borrowers using the USDA loan program make a good living and reside in neighborhoods that don’t meet the traditional definition of a ‘rural area.’

For example, college towns including Christiansburg, Virginia; State College, Pennsylvania; and even suburbs of Columbus, Ohio meet USDA eligibility standards. So do the less-populated suburbs of some major U.S. cities.

Some key benefits of the USDA loan are :

• There’s no down payment requirement
• There’s no maximum home purchase price
• You may include eligible home repairs and improvements in your loan amount
• The upfront guarantee fee can be added to the loan balance at closing; mortgage insurance is collected monthly

Just be aware that USDA enforces income limits; yours must be near or below the median income for your area.

Another key benefit is that USDA mortgage rates are often lower than rates for comparable, low- or no-down-payment mortgages. Financing a home via the USDA can be the lowest-cost path to homeownership.

FHA mortgage guidelines are famous for their liberal approach to credit scores and down payments.

The FHA will typically insure home loans for borrowers with low credit scores, so long as there’s a reasonable explanation for the low FICO.

The FHA allows a down payment of just 3.5% in all U.S. markets, with the exception of a few FHA approved condos.

Other benefits of an FHA loan are :

• Your down payment may come entirely from gift funds or down payment assistance
• The minimum credit score is 500 with a 10% down payment, or 580 with a 3.5% down payment
• Upfront mortgage insurance premiums can be included in the loan amount; mortgage insurance is paid monthly thereafter

Furthermore, the FHA can sometimes help homeowners who have experienced recent short sales, foreclosures, or bankruptcies.

The FHA insures loan sizes up to $822,375 in designated “high-cost” areas nationwide. High-cost areas include places like Orange County, California; the Washington D.C. metro area; and, New York City’s 5 boroughs.

Note that if you want to use an FHA loan, the home being purchased must be your primary residence. This program isn’t intended for vacation homes or investment properties.

The HomeReady mortgage is special among today’s low- and no-downpayment mortgages.

Backed by Fannie Mae and available from nearly every U.S. lender, the HomeReady mortgage offers below-market mortgage rates, reduced mortgage insurance costs, and the most innovative underwriting in more than a decade.

Via HomeReady, the income of everybody living in the home can be used to get mortgage-qualified and approved.

For example, if you are a homeowner living with your parents, and your parents earn an income, you can use their income to help you qualify.

Similarly, if you have children who work and contribute to household expenses, those incomes can be used for qualification purposes, too.

The HomeReady program also lets you use boarder income to help qualify, and you can use income from a non-zoned rental unit, too — even if you’re paid in cash.

HomeReady home loans were designed to help multi-generational households get approved for mortgage financing. However, the program can be used by anyone in a qualifying area, or who meets household income requirements.

Read this complete HomeReady Q&A for more on the program.

In addition, the Conventional 97 mortgage allows for the entire 3% downpayment to come from gifted funds, so long as the gifter is related by blood or marriage, legal guardianship, domestic partnership, or is a fiance/fiancee.

The VA loan is a no-money-down program available to members of the U.S. military and surviving spouses.

Backed by the U.S. Department of Veterans Affairs, VA loans are similar to FHA loans in that the agency guarantees loans for borrowers who meet VA mortgage guidelines.

VA loan qualifications are straightforward.

Most veterans, active duty, and honorably discharged service personnel are eligible for the VA program. In addition, home buyers who have spent at least 6 years in the Reserves or National Guard are eligible, as are spouses of service members killed in the line of duty.

Some key benefits of the VA loan are :

• No down payment requirement
• Flexible credit score minimums
• Below-market mortgage rates
• Bankruptcy and other derogatory credit information does not immediately disqualify you
• No mortgage insurance is required, only a one-time funding fee which can be included in the loan amount

In addition, VA loans have no maximum loan amount. It’s possible to get a VA loan above current conforming loan limits, as long as you have strong enough credit and you can afford the payments.