What credit score is needed to buy a house with no money down?
The credit score required for buying a house with no down payment varies based on the loan program and the lender's criteria. For the most popular zero-down programs, here are their requirements: VA Loan: Minimum credit score of 620. USDA Loan: A credit score of at least 640 is typically required.
Can I get a house if I have no money saved?
It is still possible to buy a house, even if you have no money saved using loan programs that can accommodate zero down payment. However, you will still need some funds to cover "closing costs" and upfront fees. Typically, these can be ~2% of the purchase price. Additionally, you will also need to earn enough to pay the debt--you would typically qualify for 3-4x your annual salary, assuming no other debts.
How much of a down payment do I need for a $300,000 house?
There is no strict requirement for a down payment amount. Down payments typically range from 3% to 20% of the purchase price, which means you'd need to save between $9,000 and $60,000 on a $300,000 home. Most people recommend 20% down to avoid a monthly premium called "private mortgage insurance". However, there are 0% down and also 3.5% down payment programs available. Keep in mind, you would still need to have sufficient income to qualify for the loan.
Is it really possible to buy a house with no money down?
Absolutely! With the right loan programs, down payment assistance, or creative financing, buying a home with little to no money upfront is possible, assuming you have steady and sufficient income.
What are the risks of buying a house with no down payment?
Risks include higher monthly payments, the need for PMI, and starting with little to no equity, which can be problematic if home values decline.
Can I use a personal loan for a down payment on a house?
Most lenders do not allow personal loans for down payments because it increases your debt-to-income ratio, making it harder to qualify.
What credit score is needed for no-money-down programs?
Generally, a score of 620 or higher is needed, though some programs and lenders may have more lenient requirements.
How can I find down payment assistance programs near me?
You can start by contacting local housing authorities, state websites, or talking to a mortgage broker who can direct you to available programs in your area.

Introduction

Buying a house is often considered one of the most significant financial achievements, but the idea of coming up with a large down payment can feel overwhelming. For many, saving enough money for a down payment seems nearly impossible, especially with the rising costs of living. However, buying a house with little or no money down is not only possible, but it’s also a practical option for many aspiring homeowners. This guide will walk you through various strategies and programs that can help you get the keys to your new home without emptying your savings account.

It's important to note that while you can buy a home with little to no upfront cash, you will still need to show that you have income to make your monthly payments and service your debt. A good general rule of thumb is: you should be able to get a mortgage for 3-4x your salary.

For example, if you make $100,000 a year, you should expect to be able to get a loan for $300,000 to $400,000. This is assuming no other money is involved (down payment, other debts, etc.). In a more realistic scenario, if you were putting 20% down on a $500,000 home, you could possibly qualify for that $500K home. Here's the math:

Home Price: $500,000
Down Payment: $100,000 (20% of $500K)
Loan Amount: $400,000 (500,000 - 100,000)
If you have other debts (like a car payment, or student loans), it would count against you, and you would qualify for less on that same $100K salary.

Speak to a loan officer, lender, bank, or credit union to get a full understanding for how much you might qualify for.

Understanding No-Money-Down Home Buying

The term “no money down” can be misleading. It doesn’t mean there are zero costs involved, but rather, you’re not required to pay the traditional 20% down payment upfront. This approach involves utilizing specific loans, programs, or creative financing methods to minimize or eliminate the need for a large initial cash outlay. In addition, you also will still need to prove sufficient income in order to pay your monthly payments.

Pros and Cons of No-Money-Down Purchases

Pros:
- Immediate Homeownership: You can get into a home faster without waiting years to save up for a down payment.
- Preserve Cash Reserves: Keep more of your savings for emergencies, renovations, or other investments.
- Build Equity Sooner: As you make mortgage payments, you begin building equity right away instead of losing out on potential property appreciation while you save.
Cons:
- Higher Monthly Payments: No-money-down loans often come with higher monthly payments due to larger loan amounts. Put simply, you are borrowing more, so you end up paying more on interest, and other fees.
- Private Mortgage Insurance (PMI): Many zero-down loans require PMI, which increases your monthly payment. Think of PMI as an extra insurance premium you have to pay, because the loan is at an increased risk due to the smaller down payment.
- Less Immediate Equity: Without a down payment, your starting equity in the home is minimal, which can be risky if property values decline. For example, if you buy a $500,000 with 0% down, you actually don't have any "equity" or ownership % in the home at the start.

Here is a quick rundown of what you'll need to buy a house with no money:

Gather all your financial information:
1. How much do you make a year? Do you have paystubs/tax forms to show this?
2. Do you have any other debt? Car payments, student loans, another property?
Speak to a loan officer at a bank, direct lender, mortgage broker, or credit union. They will be able to assess your full financial picture and let you know how much you qualify for. As a rule of thumb, expect to qualify for 3-4x your annual salary, if you have no other debt. If you make $100K a year, you should be able to get a mortgage for $300-400K.
Ask your bank or lender about government programs that have 0 down payment
You will still need 2-3% of the house price saved up to pay for closing costs and other upfront fees. For example, for a $300,000 home, you should have $6,000 - $9,000 saved up to cover fees. In some loan programs, they may offer credits to offset this amount.

How to Buy a House with No Money: Government Programs Options

When it comes to getting a house with no money, government-backed programs are some of the best options available to consumers.

The government offers several loan programs designed to make homeownership more accessible, especially for those who may not have significant savings.

USDA Loans - Zero Down Payment Mortgage

A USDA loan is backed by the U.S. Department of Agriculture. It is an excellent option for those looking to buy in rural or suburban areas. These loans require no down payment and offer competitive interest rates. Along with a VA loan, USDA loans are what people often refer to when they say "zero down mortgage". To qualify, the home must be in an eligible area, and your income must fall within the program’s limits. Here are the requirements:

1. Property Eligibility

The property must be located in an eligible rural or suburban area as defined by the USDA. You can check specific locations using the USDA eligibility map on their official website.

2. Income Limits

Income limits vary by area and household size, generally capped at 115% of the median income for the area. You must meet these income guidelines, which are meant to target low- to moderate-income borrowers.

3. Credit Requirements

While there is no minimum credit score required by the USDA, most lenders prefer a score of at least 640. Borrowers with lower scores might still qualify but may face stricter underwriting requirements.

4. Debt-to-Income Ratio (DTI)

The preferred DTI ratio is usually around 41%, though some lenders may allow a higher ratio if compensating factors (like higher credit scores or savings) are present.

5. U.S. Citizenship or Eligible Non-Citizen

You must be a U.S. citizen, a U.S. non-citizen national, or have qualified alien status.

6. Primary Residence

The property must be used as your primary residence. USDA loans cannot be used for investment properties or second homes.

7. Ability to Repay

You must demonstrate a stable and dependable income, usually verified through employment history and financial documentation like W-2s, tax returns, and pay stubs.

8. Loan Type and Amount

The loan must be a fixed-rate mortgage (30-year term is common). There are also loan limits, which vary by area, though USDA loans typically cover most moderate-priced homes.

9. Mortgage Insurance

USDA loans require an upfront guarantee fee (typically 1% of the loan amount) and an annual fee (around 0.35% of the loan balance), which is much lower compared to other government-backed loans like FHA.

VA Loans: The Gold Standard of Zero Down Mortgage

For veterans, active-duty military members, and eligible spouses, VA loans are the gold standard of no-money-down mortgages. These loans are backed by the Department of Veterans Affairs and offer zero down payment, no PMI, and competitive interest rates. The primary requirements are sufficient service history and meeting the lender’s credit standards.

Pros and Cons of a VA Loan

Pros and General Requirements:

Valid Certificate of Eligibility (COE), meeting the minimum service time, and satisfying lender credit and income standards.
No down payment is usually required, and private mortgage insurance (PMI) is not necessary.
Properties must meet VA appraisal guidelines, and the loan must be used for a primary residence. It's worth noting that VA appraisal guidelines are usually more strict than your conventional loan. Depending on the market and the specific property, this could be a disadvantage for your overall offer, as home sellers are generally looking for the strongest overall offer, including terms.

Cons:

Must be an Active Service member, or have previously served, which restricts availability
Appraisal guidelines are more strict, which could make your offer weaker overall
If buying a home with an HOA, guidelines are also more strict and could cause issues

IMPORTANT NOTE: If you are a Veteran and find a home that has a VA loan currently on it, that loan is ASSUMABLE. Meaning you can take over that loan. This could be a great advantage for most buyers and not something buyers would typically think of. The same is true for FHA loans.

FHA Loans with Down Payment Assistance

FHA loans are popular among first-time homebuyers due to their low down payment requirements. However, when paired with down payment assistance programs, you can effectively get into a home with little to no upfront cost. Down payment assistance can come in the form of grants, forgivable loans, or deferred payment loans.

Exploring Conventional Loans with Low Down Payment Options

Conventional loans, while typically requiring a down payment, also offer low down payment options that can be paired with other strategies to minimize upfront costs. A conventional loan is just a mortgage that is not offered through government programs (FHA, VA, USDA). Think of your regular mortgage from a large bank like Bank of America, or your local credit union and lenders.

Fannie Mae and Freddie Mac Loans
Programs like Fannie Mae’s HomeReady and Freddie Mac’s Home Possible allow for down payments as low as 3%. These loans cater to low-to-moderate-income buyers and are more lenient on credit score requirements than traditional conventional loans.

How to Qualify for These Loans

Credit Score: Aim for a credit score of at least 620, though higher scores will improve your rates.
Stable Income: Lenders will look for consistent income and employment history.
Debt-to-Income Ratio: Keeping your debt-to-income ratio below 43% is ideal, though some programs may accept slightly higher ratios.

Utilizing Down Payment Assistance Programs

Down payment assistance (DPA) programs can be a game-changer for homebuyers struggling to come up with the initial costs. These programs are offered by state and local governments, nonprofit organizations, and even some employers.

Local and State Programs
Many states offer DPA programs specifically designed to help first-time buyers. These can take the form of grants, forgivable loans, or deferred loans that don’t require repayment until you sell the home. Eligibility requirements vary but often include income limits and the completion of a homebuyer education course.

Nonprofit and Private Assistance Options
Nonprofits like the Neighborhood Assistance Corporation of America (NACA) provide unique assistance programs that help buyers secure homes with little to no down payment. Additionally, some banks and private lenders offer specialized programs, often targeting community development.

Leveraging Seller Financing

Seller financing, also known as owner financing, is a less common but highly effective way to purchase a home without a traditional loan. Here, the seller acts as the lender, allowing you to make payments directly to them instead of going through a bank.

How Seller Financing Works

The buyer and seller agree on the terms, including the interest rate, repayment schedule, and duration.
A promissory note is created, detailing the terms of the agreement.
The buyer makes payments to the seller, similar to a mortgage.

Benefits and Risks of Seller Financing

Benefits: Easier qualification requirements, potential for lower closing costs, and flexible terms.
Risks: Higher interest rates, shorter loan terms, and the risk that the seller might still have a mortgage on the property, complicating the transaction.

Rent-to-Own Agreements

Not all properties qualify for a 1031 Exchange. The key requirement is that both the property being sold and the replacement property must be held for investment or productive use in a trade or business. Examples of eligible properties include:

Commercial buildings
Rental properties
Farmland
Vacant land

However, personal-use properties, such as primary residences, do not qualify. Additionally, properties held for resale, like fix-and-flips, are also excluded.

Using Gifts or Loans from Family and Friends

Family and friends can be a valuable resource when buying a home, whether through gifts or personal loans.

How to Use Gifted Funds Legally

Ensure the gift is well-documented; lenders require a gift letter stating the money is a gift and not a loan.
The donor should provide proof of the funds transfer to ensure the transaction is above board.

Repayment Considerations

If you’re receiving a loan from family or friends, create a formal agreement outlining repayment terms.
Be mindful that informal loans can strain relationships if not handled professionally.

Need help with Buying a Home? Get in Touch

Written by 🏡 Wesley Kang / September 24th, 2024

Wesley Kang is a top-producing real estate agent with over $10M in transactions for 2024 and is part of a premier listing team in Los Angeles. Clients are drawn to Wesley for his honesty, transparency, and deep knowledge of the local LA market.

Leveraging Equity from Another Property

If you already own property, you can use the equity you’ve built to fund your next purchase.

Home Equity Lines of Credit (HELOC)
A HELOC allows you to borrow against the equity in your existing home. This line of credit can be used for anything, including the down payment on a new house.

Using Equity from a Second Property
Equity from rental properties or vacation homes can also be tapped. Be cautious, though—borrowing against one property to finance another can be risky if the market shifts.

House Hacking

House hacking is a strategy that involves buying a multi-unit property, living in one unit, and renting out the others. It’s a great way to cover your mortgage while owning a property with little or no money down.

House Hacking Strategies to Get Started

Buy a Duplex, Triplex, or Fourplex: Use rental income from the additional units to cover your mortgage.
Rent Out Extra Bedrooms: If a multi-unit property isn’t feasible, consider renting out spare bedrooms or finishing a basement for extra income.

Benefits of House Hacking

Lowers your housing costs, making it easier to afford the property.
Generates income that can help you qualify for a mortgage.
Provides an introduction to real estate investing without a large upfront commitment.

Finding Foreclosures and Short Sales

Buying foreclosed properties or short sales can be another way to get into a home with less money down, as these properties are often priced below market value.

Benefits of Buying Foreclosed Properties

Potentially lower purchase price, allowing you to buy with less money upfront.
Opportunity to invest in properties that can be renovated and resold for profit.

Risks Associated with Foreclosures and Short Sales

Foreclosed homes are often sold “as-is,” which can mean significant repairs are needed.
Short sales can be lengthy and complex, involving negotiations with the seller’s lender.

Partnering with an Investor

Partnering with an investor is an excellent strategy if you lack the funds but have the skills or time to manage a property. Investors put up the cash, and you handle the day-to-day operations, with profits split according to your agreement.

How to Structure a Partnership

Joint Ventures: Both parties contribute resources—one with capital and the other with management.
Equity Partnerships: Investors provide funds in exchange for a share of the property’s equity.

Finding the Right Investor
Look for investors through real estate networking events, social media groups, or local investment clubs. Be clear about your roles, expectations, and exit strategies from the beginning.

Saving on Closing Costs

Closing costs can add thousands to your upfront expenses, but there are ways to minimize these costs.

Asking for Seller Concessions
Sellers may be willing to cover part of your closing costs to close the deal, especially if the market is slow or the property has been on the market for a while.

Negotiating with Lenders
Some lenders offer credits towards closing costs in exchange for a slightly higher interest rate. This can be a good trade-off if you’re tight on cash.

Boosting Your Credit Score

Your credit score plays a crucial role in qualifying for a no-money-down mortgage. The higher your score, the better your loan terms and interest rates.

Importance of Credit in Securing No-Money-Down Deals
A good credit score not only improves your chances of approval but also reduces your overall borrowing costs.

Tips to Improve Your Credit Quickly

Pay Down Existing Debts: Lowering your credit utilization ratio can significantly boost your score.
Make Timely Payments: Ensure all bills are paid on time; even one late payment can negatively impact your score.
Avoid New Credit Inquiries: Each hard inquiry can ding your score slightly, so avoid opening new credit accounts before applying for a mortgage.

Creative Financing Options

If traditional loans and programs don’t fit your needs, there are other creative financing methods to explore.

Lease Options
A lease option allows you to rent a property with the right to buy it later. Part of your rent goes toward the purchase price, making it easier to save for a down payment.

Private Money Lenders
Private money lenders are individuals or small companies willing to finance your home purchase. These loans often come with higher interest rates and shorter terms but can be a viable option for those struggling to secure conventional financing.

Common Pitfalls to Avoid

Buying a home with no money down can be a fantastic opportunity, but it’s important to be aware of potential pitfalls.

Hidden Costs in No-Money-Down Deals

Higher Interest Rates: No-money-down loans often come with higher rates, which can add up over time.
PMI and Other Fees: Be prepared for PMI and additional fees that can increase your monthly payment.

Long-Term Financial Implications

Lack of Equity: Starting with zero equity means it takes longer to build ownership in your home, putting you at risk if property values fall.
Risk of Overleveraging: Taking on too much debt can strain your finances, making it difficult to keep up with payments if your financial situation changes.

Conclusion

Buying a house with no money down is not a one-size-fits-all solution, but with the right approach, it’s entirely achievable. From government-backed loans to creative financing options, there are numerous pathways to homeownership without needing a huge cash reserve. Be sure to explore all your options, understand the risks, and consult with real estate and financial professionals to make informed decisions. Your dream home could be closer than you think!

Frequently Asked Questions

What credit score is needed to buy a house with no money down?
The credit score required for buying a house with no down payment varies based on the loan program and the lender's criteria. For the most popular zero-down programs, here are their requirements: VA Loan: Minimum credit score of 620. USDA Loan: A credit score of at least 640 is typically required.
Can I get a house if I have no money saved?
It is still possible to buy a house, even if you have no money saved using loan programs that can accommodate zero down payment. However, you will still need some funds to cover "closing costs" and upfront fees. Typically, these can be ~2% of the purchase price. Additionally, you will also need to earn enough to pay the debt--you would typically qualify for 3-4x your annual salary, assuming no other debts.
How much of a down payment do I need for a $300,000 house?
There is no strict requirement for a down payment amount. Down payments typically range from 3% to 20% of the purchase price, which means you'd need to save between $9,000 and $60,000 on a $300,000 home. Most people recommend 20% down to avoid a monthly premium called "private mortgage insurance". However, there are 0% down and also 3.5% down payment programs available. Keep in mind, you would still need to have sufficient income to qualify for the loan.
Is it really possible to buy a house with no money down?
Absolutely! With the right loan programs, down payment assistance, or creative financing, buying a home with little to no money upfront is possible, assuming you have steady and sufficient income.
What are the risks of buying a house with no down payment?
Risks include higher monthly payments, the need for PMI, and starting with little to no equity, which can be problematic if home values decline.
Can I use a personal loan for a down payment on a house?
Most lenders do not allow personal loans for down payments because it increases your debt-to-income ratio, making it harder to qualify.
What credit score is needed for no-money-down programs?
Generally, a score of 620 or higher is needed, though some programs and lenders may have more lenient requirements.
How can I find down payment assistance programs near me?
You can start by contacting local housing authorities, state websites, or talking to a mortgage broker who can direct you to available programs in your area.

How to Buy a House with No Money | No Down Payment Programs

Table of Contents: How to Buy A House with No Money