How to Get a Mortgage With No Down Payment
Saving for a traditional 20% down payment can seem like mission impossible, especially if you’re trying to snatch low interest rates or watching homes fly off the market. But a 20% down payment isn’t the only way to get a mortgage.
No-down-payment home loans can open doors to homeownership for buyers with limited savings and free up cash for expenses such as closing costs or home repairs. Here’s what you can expect when you’re buying a home with no money down.
What you’ll learn here:
- Can you get a house loan with no money down?
- What are your no-down-payment mortgage options?
- How can you get down payment help?
- When is a zero-down-payment mortgage a good idea?
What Are Today’s Mortgage Rates?
Locking in a low mortgage rate now can save you thousands of dollars over the life of your loan. Compare your mortgage rate offers with national average trends for current mortgage rates.*
This Week’s Rate
Last Week’s Rate
|30-year fixed-rate mortgage||3.13%||3.02%|
|15-year fixed-rate mortgage||2.59%||2.62%|
|30-year fixed-rate jumbo mortgage||3.2%||3.04%|
|5/1 jumbo ARM||3.4%||3.41%|
*Rates as of Aug. 28, 2020
Can You Get a Mortgage With No Down Payment?
You can get a no-down-payment mortgage, although you’re more likely to find a low-down-payment mortgage. Many mortgages require a down payment, even a minimal 3%. But putting down 20% is no longer the standard, even for some conventional loans.
While it’s true that the best terms are generally reserved for well-qualified applicants who can make a 20% down payment, you can take advantage of various mortgage programs that demand far less.
But if you want a no-down-payment home loan, keep in mind that the loan types available to you may be limited. Typically, no-down-payment mortgages come in the form of government loans or special lender programs.
Unfortunately, homebuyers with low credit scores might not qualify for some programs.
What Are Zero-Down-Payment Mortgage Options?
Zero-down-payment loan options are the key to homeownership for many borrowers who lack the savings to put toward a home but qualify for a loan. Generally, conventional loans don’t provide zero-down-payment options.
Here are a few programs to explore with 100% financing for your primary residence.
The Department of Veterans Affairs, or VA, offers a zero-down-payment loan with no loan limit but a limit on what the VA will guarantee for qualifying veterans and spouses. Veterans who want to apply must furnish a Certificate of Eligibility, or COE.
The VA loan program has no minimum credit score, but most VA-approved lenders have credit score requirements.
Some borrowers may need to pay an upfront funding fee, which can be financed. VA home loans do not require mortgage insurance.
U.S. Department of Agriculture Loans
“People think USDA is all about farms, but it’s about areas that are outside of suburbia,” says Bill Banfield, executive vice president of capital markets, Quicken Loans.
The Single Family Housing program has no credit score requirements, but applicants must show an ability to manage debt and pay bills.
Not only is no down payment needed, but also the mortgage insurance is only 0.35% compared with 0.85% for an FHA loan.
Many lenders participate in the Doctor Loan Program, and some offer zero-down options. The program is designed for early career physicians, dentists, residents and fellows, who frequently have little or no money saved and big student loan bills.
Many credit unions have zero-down mortgages, although they generally require membership to qualify. Promotions can change, so check with your lender for the latest information.
What Are Low-Down-Payment Mortgage Options?
If you can swing a down payment of any size, you will broaden your loan options and save on interest charges. Overall, your mortgage costs will be less if you can foot even 3% of the loan value as a down payment.
“There’s no free lunch,” says David Battany, vice president of capital markets, Guild Mortgage.
Consider these low-down-payment mortgage options:
A piggyback loan is a second loan taken at the same time as your primary mortgage to cover a substantial portion of your home’s purchase price. It can be used to cover part of your down payment.
This type of loan can reduce the cash you need to purchase a home and help you avoid private mortgage insurance. A piggyback loan can also ensure that your loan amount stays under conforming loan limits, which can make it easier to qualify for a government-backed loan.
Piggyback loans typically require down payments of their own.
A common scenario is to make a 10% down payment and take a first mortgage for 80% of the home’s purchase price and then a piggyback loan for the remaining 10%.
“A piggyback loan is a benefit to borrowers living in high-cost markets who are at the maximum loan amount for a Freddie Mac or Fannie Mae loan,” Battany says. “You can get a piggyback that allows you to get the Fannie or Freddie loan first and a second loan on top of that at a higher rate that you should work to pay off sooner.”
The Federal Housing Administration offers a low-down-payment mortgage that allows you to put as little as 3.5% down. Borrowers can qualify with credit score requirements that are more lenient than conventional low-down-payment loans.
Your FICO score must be at least 580 to make a 3.5% down payment. For scores between 500 and 579, you’ll need a 10% down payment.
Your debt-to-income ratio should be less than 43%, and you must provide proof of employment and steady income. However, most FHA loans require a monthly mortgage insurance premium added to your mortgage payment.
This program offers a 3% down payment loan for low- to middle-income homebuyers. That’s slightly lower than 3.5% for the FHA loan, but the credit guidelines are tougher.
Your credit score must be at least 620 to get a HomeReady loan, and if it is 680 or higher, you could get better pricing.
Freddie Mac Home Possible Loans
This fixed-rate loan has a down payment as low as 3% and lower-cost mortgage insurance than on FHA loans. Freddie Mac’s Home Possible program is available for buyers with credit scores of 620 or higher.
The Conventional 97 Fannie Mae loan requires a 3% down payment and sets no income limits. You’ll need a credit score of 620 or higher for this conventional loan.
The Department of Housing and Urban Development’s Good Neighbor Next Door program is for eligible teachers, law enforcement officers, firefighters and emergency medical technicians. Eligible borrowers can purchase a HUD-owned single-family home for 50% off its appraised value.
The required down payment is as low as $100, and the buyer must live in the home as a primary residence for at least three years.
When Is a Zero-Down-Payment Mortgage a Good Idea?
A zero-down mortgage is a great option for a homebuyer who has limited cash on hand but is otherwise well-qualified to purchase a home.
Some good reasons for choosing a no-money-down mortgage are to:
- Reserve savings for other expenses, such as closing costs or home improvements
- Leverage cash for investing rather than tying up money in a mortgage
- Get into a home faster by not having to save 20% of the loan value
- Take advantage of the market’s historically low interest rates rather than waiting to save and possibly missing out on a home
“There is a benefit for those who can’t save up enough, and home prices keep appreciating, so it’s like a moving train you can never quite catch,” Battany says. “As soon as you save more money, the homes go up in price.”
If you have steady income, can handle home upkeep and don’t plan to sell for at least a few years, a zero-down-payment loan can put you on the fast-track to homeownership.
If you can save and put some money down on a mortgage, you can find down payment assistance programs to help. Those programs help homebuyers with loans or grants that reduce required down payments.
When Is a Zero-Down-Payment Mortgage a Bad Idea?
Getting into a home without making a large down payment might sound attractive, but putting money down on a mortgage has its benefits. Even a small down payment can save money because your monthly payment will cost less, you may lock in a lower interest rate, and you could avoid paying private mortgage insurance, or PMI.
Consider these reasons to make a down payment on your mortgage:
- You can save on interest rates because your lender perceives less risk.
- You can avoid paying a private mortgage insurance premium.
- You can reduce your monthly payments.
- You can immediately have some equity in the home: The more you pay down your mortgage, the more your equity goes up.
In general, the more you can put down on a home, the better the terms you can get on your loan and the less you will pay overall.
You should expect to pay mortgage insurance until you reach 20% equity in your home, which could be a long time if you’re starting at zero. Use a mortgage calculator to find out how long it will take you to remove PMI.
A zero-down-payment loan is also not a good idea in a declining real estate market. If you make no down payment and your home value drops, you will owe more on your home than it is worth.
This is also known as being underwater. You’ll lose out if you try to sell.
Finally, a zero-down mortgage is not a good financial move for someone who can’t set aside any money regularly. “If you can’t save, you’ve got two problems: a house with no equity and no personal cash savings or reserve to dig into in case of emergency,” Battany says. “That puts you in a thin financial position.”
How Can You Get Down Payment Assistance?
If you can’t afford a down payment, consider down payment assistance programs. Down payment and closing cost assistance programs are available nationwide, especially for first-time homebuyers or homebuyers who meet certain income requirements.
“There are various down payment assistance programs available, depending on your state, city and county, and a local lending specialist can provide you with that information,” says Ann Thompson, retail sales executive-West, consumer lending, Bank of America. “There are also programs with a higher interest rate where you can get partial bank-paid credit to help with closing costs.”
Some banks have special programs for low- to moderate-income homebuyers, which may include down payment assistance and grants. “The goal is to give people access to credit to help meet down payment requirements,” Banfield says.
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