Zero Down Payment Home Loans: How to Buy a House With No Money Down

One in five aspiring homeowners say they’ll never be able to save enough for a down payment, and four in five say down payment and closing costs are an obstacle in their homeownership dreams. For buyers who manage a 20% down payment, it often takes seven years of saving to reach that goal.

You might not want to wait seven years, or you may need to buy sooner for various reasons. Does a zero-down home loan really deliver? What hidden costs and risks should you know about? Here’s what to consider when deciding whether buying a home with no money down is right for you.

Can You Really Buy a Home With No Down Payment?

Yes, you really can buy a home with no money down. But, no money down doesn’t mean that you buy a home for free, explains Sain Rhodes, real estate expert at Clever Offers. “Indeed, this thought is extremely dangerous.”

Instead, buying with no down payment means financing 100% of the home’s purchase price. You still pay closing costs—typically 2% to 5% of the loan amount, or roughly $8,000 to $20,000 on a $400,000 home.

Common closing costs include:

• Lender origination fees
• Appraisal fees
• Prepaid escrow fees for one year of homeowners insurance, prorated property taxes, and mortgage insurance

Depending on the loan, there may be other fees, such as up to 3.3% of the loan amount in VA funding fees or 1.75% in upfront mortgage insurance premiums (UFMIP) on FHA loans.

Can You Roll Closing Costs into the Loan?

VA funding fees are usually rolled into the loan. This increases your loan amount and the total interest paid over time, but reduces the cash needed at closing.

Other fees, like lender origination and prepaid escrow, are usually paid out of pocket unless covered by seller concessions, builder incentives, lender credits, gift funds, or down payment assistance programs (DPAs).

As an example, escrow prepaids can range from $3,000 to $10,000 or more on a $400,000 home, depending on factors such as local home insurance and property tax rates.

Note: Buyers sometimes roll lender origination fees into their loan to reduce upfront costs, but the loan-to-value (LTV) cap or other loan and lender restrictions can prevent this with zero-down loans. Lender credits are an alternative, but usually mean a higher interest rate.

How To Buy A House With No Money Down

There are three main ways to buy a home with no money down, with some requiring gift funds or down payment assistance to qualify as truly zero down. Here’s a breakdown of each, plus key details to consider.

What Outside Funds Can I Use to Reduce the Cash at Closing?

You may be able to use gift funds—money given to you by family and friends—to cover part or all of your down payment requirement or closing costs. Be sure to check with your lender before accepting, as these gifts must be carefully documented.

Another option are DPAs, with borrower eligibility varying by program, income, location, and whether you’re a first-time homebuyer. Some DPAs are grants you don’t have to repay. Others are low- or zero-interest loans.

For example, Florida Hometown Heroes offers up to $35,000 in down payment assistance as a 0% 30-year loan for eligible first-time buyers working full-time in certain professions. Other popular DPA programs include:

• Chenoa Fund
• Bank of America home grant programs
• CalHFA MyHome Assistance Program
• Maryland Mortgage Program (MMP)
• Texas State Affordable Housing Corporation (TSAHC) DPA programs
• Fannie Mae and Freddie Mac down payment assistance

Who Qualifies for Zero-Down-Payment Loans?

You’ll generally need to meet the lender’s minimum eligibility criteria to qualify for zero-down loans.

Cody Schuiteboer, president and CEO of Best Interest Financial, says that a common misunderstanding borrowers have is that a “zero down equals an easy qualification.

While USDA and VA mortgages are the most forgiving when it comes to down payment rules, they still require a steady income, an acceptable debt-to-income ratio, and a good credit score.” He adds that zero-down mortgages solve savings issues, not qualification problems.

What Are the Greatest Risks of Buying With No Money Down?

Based on his experience, Schuiteboer says the greatest risks of buying with 0% down are, in order:

1. Lack of cash flow after closing: Most zero-down buyers have nothing left for emergencies. Schuiteboer advises keeping at least three to six months of mortgage payments—about $3,000 to $6,000—in the bank for emergencies.
2. No way to sell without paying out of pocket: Selling in the first three years may mean not having enough home equity to cover real estate agent commissions.
3. Higher costs over the life of the loan: On a $300,000 home, a zero-down loan can cost over $70,000 more in interest than a loan with 10% down.
4. Risk of being underwater if home values drop: You only face this risk if you need to sell or refinance while prices are down, like after a job change or divorce. Otherwise, “if you can stay in the house for seven to ten years, you will have nothing to worry about,” says Rhodes.

Should You Buy Now or Wait and Save?

The decision to buy now or wait hinges on your cash reserves after closing and whether home prices are rising faster than you can save. Schuiteboer walks clients through the following criteria:

Buy now with 0% down if these are true:

• Your rent takes up more than 30% of your gross income.
• Home prices in your market are rising faster than you can save.
• You plan to live in the home for five to seven years.
• You have three to six months of mortgage payments saved.
• You qualify for a true zero-down loan, not a loan with a borrowed down payment.

Wait and save if:

• You’re renting your home at below-market prices.
• The market is flat or declining.
• You’re not sure you’ll stay in the house for at least five years.
• Your credit score could improve significantly, lowering your interest rate if you wait.
• You’d have no cash reserves left after closing.

“I do believe that a person who has no savings cannot afford to buy now. Buying a house with no reserves after closing is very dangerous,” warns Schuiteboer.

What Should You Do Before Applying for a Zero-Down Loan?

If you’re considering a zero-down loan, here’s how to prepare and set yourself up for success:

Step 1: Pull Your Credit Report and Check Your Credit Score

Most lenders have minimum credit score requirements. Get your free credit report from each bureau at annualcreditreport.com. Check for errors and resolve any hurting your score.

Step 2: Calculate Your Household Income to Help Determine Loan Eligibility

USDA, HomeReady, and Home Possible loans have income limits based on Area Median Income (AMI). USDA counts all adults 18+ expected to live in the new home at closing, even if they’re not on the loan or aren’t related to you—such as roommates.

HomeReady and Home Possible only count borrower income. Your lender can help you calculate household income.

Step 3: Estimate and Save for Closing Costs and an Emergency Fund

Closing costs are typically 2% to 5% of the loan. Look for ways to reduce them, such as down payment assistance programs, gift funds, lender credits, and seller concessions. Save for the remainder and for an emergency fund.

Step 4: Get Pre-Qualified With at Least Two Lenders Who Specialize in Your Loan Type

Choosing a lender who specializes in your loan type helps avoid delays, errors, and missed steps.

Is a Zero-Down Mortgage a Good Idea?

Zero-down mortgages can be a smart way to buy a home when saving for a bigger down payment isn’t realistic. But they’re not a no-cost option; you may need to account for closing costs and save for emergencies before buying.

These loans work best for buyers planning to stay at least five years and who qualify for a true zero-down loan. If a zero-down loan sounds right for you, compare mortgage lenders that specialize in your loan type for a better idea of your options and costs.