Jennifer Chiongbian

Published On: December 16, 2020

Zero down mortgages are such an enticing idea. Practically get a house for free with no money down and just make the house’s monthly payments. No need to shell out $60,000 cash for a $300,000 home. It sounds like a no-brainer, right?

Well…not so fast. There are some things to consider if this is the route you wish to take.

Don’t worry, you’re not alone! There are many ways to buy a house without putting any money down. Keep reading to learn more!

Can you buy a house with no down payment?

The answer is yes!

There are a few different ways to do it, but most require good credit, strong income, and a little bit of luck. The most common way to buy a home with no down payment is to use government-backed programs like FHA or VA loans.

These loans are available to active-duty military

Types of Mortgage Loans with No Down Payment

First off there are two types of loans that allow for a true $0 down payment. Only USDA and VA loans allow this. These are government-backed loans with particular requirements to qualify.

Government-backed loans mean that the loan is insured by the federal government in case you stop making the payments.

For USDA loans that are guaranteed by the Department of Agriculture, the requirements are:

  • Has to be a primary residence
  • It has to be located in a qualified rural area
  • You must have a credit score of 650
  • Your adjusted income is equal to, or less than 115% of the median income in the area
  • Mortgage insurance required

For VA Loans that are backed by the Department of Veteran’s Affairs, you are eligible if you meet one or more of the following requirements:

  • A spouse of a service member who perished in the line of duty or as a service-related disability
  • Served 90 consecutive days in wartime active duty
  • Served 181 days of active service during peacetime
  • Six years of service in the National Guard or Reserves
  • 660 credit score

How can I buy a house with bad credit and no down payment?

If you have bad credit but still want to buy a home, there are a few options you can consider. The first is to look for a government-backed program like FHA or VA loans, which we already mentioned.

  • These loans don’t have the same strict requirements as conventional loans, so they may be easier to qualify for.
  • Another option is to get a co-signer for your loan. This is someone with good credit who agrees to sign the loan with you and be responsible for the payments if you can’t make them.

Of course, this is a big responsibility for the co-signer, so it’s not something to take lightly. You should only consider this option if you’re confident that you can make the payments on time.

Mortgage Loans with No Down Payment and No PMI

If you don’t want to put any money down and you don’t want to pay for PMI, there are a few options available. The first is to look for a lender that offers what’s called a “no PMI loan.”

These loans usually have higher interest rates than conventional loans, but it’s a trade-off that can help you get into a home without any upfront costs.

Another option is to get a conventional loan with a very low down payment. Some lenders offer loans with as little as three percent down, but you’ll need to have good credit to qualify.

If your credit isn’t great, you may still be able to get a conventional loan with a higher down payment. It all depends on the lender you use.

No Down Payment vs Zero Closing Cost Mortgages

If you’re trying to decide between a no down payment mortgage and zero closing costs, it’s important to understand the difference.

A no down payment mortgage means that you don’t have to put any money down when you buy your home. This can be a good option if you don’t have a lot of cash on hand, but it’s important to remember that you’ll likely have to pay for PMI if your down payment is less than 20 percent.

A zero closing cost mortgage means that you don’t have to pay any of the fees associated with getting a mortgage. These fees can add up, so this can be a good option if you’re short on cash. The downside is that you’ll likely have to pay a higher interest rate on your loan.

What if you do not qualify for $0 down?

If you cannot qualify for these true zero down home loans, there is an FHA loan that you may be eligible for. It is a low down payment as little as 3.5% up to 10% down depending on your credit score.

The FHA loan requirements are as follows:

  • 500-580 credit score
  • <43% debt to income ratio
  • Must be a primary residence
  • Must have proof of steady income and employment
  • Private mortgage insurance required

When you choose any of these zero or low-down-payment programs, keep in mind that it is very little to no equity built into your home. You are borrowing almost the full amount, or the total amount of the property.

You are in a financially precarious situation in the event of a downturn in the real estate market. It works in an upward trending market.

You will want to do and ask yourself a few things before deciding if this is the right loan fit for you.

  • Assess current market conditions and projections
  • How long do you plan to hold on to the property?
  • What are your goals of homeownership? Ie. Build equity, short term
  • Will it be your last home you want to live in?
  • Am I okay with higher than typical mortgage payments?
  • You will be subject to private mortgage insurance (PMI)

You will be paying higher than usual mortgage payments because you are seen as high risk by the lender. Very little or no cash-out on your side for an equity contribution, coupled with low credit scores, will result in higher interest rates.

Then there is private mortgage insurance (PMI). This will be required by any lender with equity less than 20% of the home value. This will be another fee on top of your mortgage.

Once you have reached 20% equity on your home, make sure to contact your lender to have this removed. This is put in place for the lender’s protection in case you default on your payments.

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