100% financing home loans for new and repeat home buyers
100% financing home loans are mortgages that finance the entire purchase price of a home, eliminating the need for a down payment. New and repeat home buyers may be eligible for 100% financing through nationwide government-sponsored programs.
Do 100% loans exist in 2023?
You bet they do. And many home buyers can qualify.
Never thought you could buy a home because of tough down payment requirements? Well, a number of mortgage options are available that allow you to finance 100% of the purchase price.
Many first-time home buyers assume 100% loans ceased to exist after the mortgage market downturn late last decade. But some zero-down home loans survived and are still available in 2023.
In this article, you will learn about a few of these loan types. You’ll probably be surprised that you can still buy a home with little or no money out of your own pocket.
In this article:
- How to buy a home with no money down
- USDA home loans (0% down)
- VA home loans (0% down)
- FHA home loans (3.5% down)
- 100% financing loans and closing costs
- Our recommended lenders for new home loans
Can you buy a home with no money down?
A major misconception about home buying is that you need a 20% down payment before you can think about becoming a homeowner.
However, a number of government-backed loans offer buyers the opportunity to buy the home of their dreams without putting any money down. These include the zero-down VA loan and the zero-down USDA mortgage. Both options allow no money down, although you will still need to cover closing costs, likely out of pocket — and not everyone is eligible.
Why lenders still offer 100% loans
Many new home buyers wonder why most types of loans require a down payment.
After many studies, banks and lending institutions have determined that the higher the down payment on a loan, the lower the chances of the borrower defaulting. In fact, the down payment amount is more important in determining risk than even credit score.
That’s why, years ago, the standard down payment amount became 20%. Anything less than that requires some kind of insurance, such as private mortgage insurance (PMI), so the lender would get their money back if the borrower failed to pay the loan back.
Fortunately, there are programs for which the government provides insurance to the lender, even though the down payment on the loan is zero. These government-backed loans offer a zero-down payment alternative to conventional mortgages.
There are programs that make it possible to buy a home without a down payment, like USDA and VA loans.
Not sure which loan is right for you? It all depends on eligibility.
While FHA loans are available to just about everyone who meets the lending criteria, you need military service history to qualify for a VA loan and you need to be buying in a rural or suburban area for USDA.
Additionally, there are a few other ways to reduce — or eliminate — your upfront costs for a home purchase.
Six strategies to buy a house with no money down
If you want to buy a home with no money down, here are six strategies to consider:
- Apply for zero down loan: The USDA and VA loan programs offer zero-money down opportunities.
- Use a down payment assistance program: Many cities, states, and counties in the U.S. offer some type of down payment assistance. And there are nationwide programs, too. You just have to dig up what’s available in your area.
- Use gift funds: You can receive gift funds from a family member, non-profit, church, employer, down payment assistance program, or other approved source. Most loan types let you use gift funds to cover the down payment and/or closing costs.
- Ask for lender credits: Lender credits mean that the lender covers your closing costs in exchange for a higher interest rate
- Ask for seller concessions: In this case, the seller would pay your closing costs. Seller concessions can be negotiated as part of your purchase contract.
- Get a second mortgage: If your first mortgage doesn’t cover enough of the upfront funds needed, you may be able to get a second mortgage — like a home equity line of credit — and use that extra amount to cover closing costs.
Using one or more of these strategies, it’s possible that you could buy a home without putting anything down.
The USDA mortgage loan has been around for years, but it has become more popular recently because it requires zero money down and has lenient credit requirements.
The USDA loan is a government-sponsored loan that exists to help develop rural communities by encouraging home ownership. That’s why this loan type is also known as the rural development loan.
To qualify, you need enough income to support your house payment, but it must not exceed the limits established by the USDA.
You also must buy a home that is within USDA’s geographical boundaries. Although the program targets rural areas, many eligible areas are suburban. You might be surprised at how accessible major cities are from USDA-eligible areas. A qualified loan officer can help you determine whether you qualify.
The USDA mortgage even allows the seller to pay your closing costs. With the USDA loan, it could be cheaper to move into a home you buy than to rent the same house.
There is a 1% upfront fee that can be financed into your loan amount and doesn’t have to come out of your pocket. The USDA also charges $35 per month on every $100,000 borrowed as an ongoing fee to make the program viable for future home buyers.
Even with these added costs, USDA loans are a great opportunity to break into homeownership with little upfront costs, and fairly low monthly costs, considering the low interest rates available for this program.
Another mortgage loan that allows you to finance 100% of the home’s cost is the VA home loan. This loan is available to applicants typically with at least two years of former military experience, or 90 days if still serving.
VA loans have very low rates – usually even lower than conventional loans. And they don’t require a monthly mortgage insurance fee like USDA, FHA or conventional loans.
When compared to any other low down payment mortgage, VA home loans are typically the most affordable – in upfront as well as monthly costs.
You’ll need to pay an upfront VA funding fee but it will almost always be less than the cost of private mortgage insurance — or a down payment.
With a VA loan, you can buy a home with zero down and have the seller pay some or all of your closing costs, meaning you could own a home with no money out-of-pocket.
Lenders typically allow lower credit scores on VA loans as well. While most mortgage lenders require just a 640 score, some allow you to have a score as low as 620.
The VA home loan is the easiest 100% home financing option available.
Federal Housing Administration (FHA) loans usually require a 3.5% down payment. That’s quite a bit less than 20 percent but can still be a lot of money. For example, on a $300,000 home purchase, 3.5% down is $10,500.
According to FHA guidelines, you can receive a gift for the entire down payment. The gift can be from a family member, non-profit organization, fiancé, or another eligible down payment gift source.
So while the loan technically needs a down payment and is not a 100% loan, the effect is the same. If you have a gift source, you don’t have to come up with anything for the down payment (this is also true of conventional loans!).
First-time home buyers receive down payment gifts more often than you might think. There’s a chance that you know an eligible donor who could help you with all or part of the down payment.
Another niche offering from the Department of Housing and Urban Development (HUD) is the Good Neighbor Next Door loan. Teachers, police officers and some other public employees can buy a home with just $100 down. That’s not quite 100% financing, but very close to it.
Why do “no down payment mortgages” exist?
There are a number of options if you’re in the market for no down payment mortgages. The U.S. government wants people to buy homes.
The National Association of Home Builders estimates that homeownership drives between 15-18% of the country’s economy. That’s huge.
So, Uncle Sam has created ways to buy with zero down, and will even give you a fantastic rate on these loans. No down payment mortgages often come with lower rates than loans that require 20 percent down.
The USDA, FHA and VA loans all come from essentially the same place — government-run organizations that want to spur homeownership.
You might be a renter, but the government doesn’t want you to stay that way for long.
Its mission is to provide the average buyer with low- and no-down-payment loan options. And these government organizations don’t even require that you have a high credit score. Lenient lending lifts the homeownership rate and drives the U.S. economy forward, and is a win for everyone.
No down payment loans for the first time home buyer
As a first-time home buyer, you may not have much to put down on a home.
The key is to find the right loan program or combination of programs.
If you’re buying outside a major metro area, check into the USDA loan. It’s a no down payment program. You don’t have to be a first-time home buyer to get one, but this is who usually uses it.
If you have a military background, you could be eligible for a loan from the Department of Veterans Affairs. It requires nothing down and rates are typically lower than for FHA.
If you choose a loan program that requires a down payment, look around for secondary programs. Your city, state, or county may provide grants and down payment assistance to help first-time home buyers break into the housing market. Learn more about down payment assistance programs here.
What is the average down payment for a house?
Historically, average down payments for home mortgages have fluctuated in step with home prices, interest rates, and other factors. For decades, the national average for a down payment on a home hovered somewhere around 20%. But down payment averages have dropped over the past decade. As of 2021, the average down payment for first-time buyers is roughly 12%.
Remember that a borrower’s financial situation affects their down payment. For example, a first-time home buyer with little or no money in their bank account might choose a zero-down USDA loan. However, this loan option comes with upfront and monthly fees that drive up the monthly payment.
Another first-time buyer with adequate savings might choose to put 20% down or more, to keep monthly payments low.
In any case, buyers shouldn’t “follow the crowd” when it comes to down payments. They should look at their own situation and discover what’s best for them.
One point to consider when talking about zero-down loans is closing costs. Every time a mortgage loan is opened, there are costs associated with it, such as the appraisal, title, loan processing fees, mortgage points, and more. Someone has to pay these fees.
Typically, it’s the buyer’s responsibility to pay most of the closing costs. That could range anywhere from $2,000 to $5,000 or more. That’s why some first-time home buyers are surprised when they have to come up with a few thousand dollars, even when getting a 100% mortgage loan.
But there are ways to get around this expense. The most common way is to receive a closing cost credit from the seller.
In some cases, the seller will offer closing cost assistance as an incentive for buyers. It costs the seller money but increases the chances that the home will sell. Talk to your real estate agent about requesting closing cost assistance. It’s not always available, but when it is, it’s a great help to those buying with a 100% financing mortgage.
Zero-down financing is alive and well. If you know about the special programs available, you can buy a home with nothing down.
To get started, connect with a lender that specializes in 100% mortgage loans here. Get a pre-approval for your loan so you can start shopping for a home. In 30 to 60 days, you could be moving into the home you bought with little or no money out of your own pocket.
Can I get a mortgage with no money down?
In a word, yes. There are mortgages available where the required down payment is zero. These are often referred to as “100% loans” – loans in which the money lent comprises 100% of a particular home’s market value. Zero-down loans include the government-backed VA and USDA programs.
Should I put 20% down?
You can tap into a zero money down loan. But is it a good idea?
Traditionally, home buyers put down 20% on a home. With today’s home prices, saving up for that kind of down payment is unrealistic for many. But if you have the funds available, putting 20% down can help you avoid costly PMI. Plus, a lower loan amount with the same loan term leads to lower monthly payments.
What credit score do you need for 100 percent financing?
The credit score you’ll need for 100 percent financing varies based on the loan type. For a USDA loan, you’ll generally need a credit score of at least 640. But for a VA loan, some lenders will accept credit scores between 580 to 620.
What is the minimum down payment for a mortgage?
The minimum down payment for a mortgage varies based on the loan type.
With a VA or USDA loan, you might not be required to make a down payment. But for an FHA loan, you’ll need to put down at least 3.5%. And for a conventional loan, you may only have to put down 3%.
Are there zero-down payment mortgage loans?
Yes, there are zero-down payment mortgage loans. Depending on your situation, you may not have to make a down payment for a USDA or VA loan.
Can you get a 100 percent home loan?
Yes, you can get a 100 percent home loan. The two government-backed loan options that offer 100% financing to qualified borrowers include the VA loan and USDA loan.
What type of home loan is the easiest to qualify for?
In general, the FHA loan is considered one of the easiest to qualify for based on its relatively low credit score requirements. However, you’ll need to make a down payment of at least 3.5% to qualify for this loan type.
What is a 100% loan?
A 100% loan provides the entire cost of the home purchase upfront. With that, you won’t have to make a down payment to obtain the loan.
Do banks provide 100 percent mortgage financing?
Yes, many lenders, including banks, offer 100 percent financing for mortgages. Other lenders include credit unions and online lenders.
Is 100 percent financing a good idea?
Whether or not 100 percent financing is a good idea depends on your unique situation. If you want to maintain a cushion of savings in the bank, then 100% financing can allow you to complete your home purchase without depleting your nest egg. With those emergency savings on hand, you’ll be better prepared to handle unexpected expenses that come with homeownership.
But 100 percent financing will lead to larger loan payments. So, make sure that your mortgage payment fits comfortably in your budget before signing up.
How do I apply for down payment assistance?
The first step is to determine which down payment assistance program you are eligible for. For example, you might only find first-time homebuyer programs in your state. Once you find a program, the application should be readily available for you to fill out. Be prepared to provide extensive information about your income.
Do you have to repay down payment assistance loans?
The repayment requirements for down payment assistance loans vary. In some cases, you’ll have to repay the loan alongside your mortgage. In other cases, the debt will be forgiven if you meet certain requirements.
Will using down payment assistance hurt the chances of my offer being accepted?
When using a down payment assistance program, that shouldn’t impact the chances of your offer being accepted. Essentially, this is just a part of your financing contingency. Since most buyers use loans to purchase their homes, it’s not an uncommon thing for sellers to encounter.
How can I buy a house with no money down?
You can buy a house with no money down in two ways. The first is to tap into a zero-down VA or USDA mortgage. If you don’t qualify for either of those loan types, you can pursue a no money down mortgage through a combination of a low down payment mortgage and a down payment assistance program.
Are there home buyer grants?
Yes, home buyer grants are available in every state. Although you’ll need to meet certain eligibility requirements, a home buyer grant could open the door to homeownership.
Can cash gifts be used as a down payment?
Yes, you can use a cash gift as a down payment on a home. However, you’ll need to provide documentation on the source of the gift and receive it as a check or wire transfer. The lender will require a gift letter from the benefactor that clearly states the money is not a loan. If the gift involves repayment, lenders generally won’t accept that as a down payment.
What are FHA loan requirements?
The Federal Housing Administration offers FHA loans with low down payment options. You’ll need to make a 3.5% minimum down payment with a credit score of 580 or higher.
Beyond the down payment, you’ll need documentation of a stable income and a mortgage amount within the FHA’s loan limits. Plus, you must intend to use the home as a primary residence.
What are the benefits of a bigger down payment?
When you make a bigger down payment, there are many benefits. The smaller loan amount will lead to smaller monthly payments. Plus, you can potentially avoid private mortgage insurance (PMI) that increases your monthly payments.
If I make a low down payment, will I have to pay mortgage insurance?
In general, you’ll have to pay mortgage insurance when you make a down payment of less than 20%. However, that’s not always the case. For example, when you use the VA loan, you won’t have to pay private mortgage insurance regardless of your down payment amount.
If I make a low down payment, what will my lender fees be?
When you make a low down payment, you’ll be taking on a larger loan. Since most lenders base their fees on the loan amount, you’ll pay more fees when you make a lower down payment.
How can I fund a down payment?
A down payment is a major expense. You can fund it by building up savings in a savings or checking account. If you are selling an existing home, you could use the proceeds from that sale as a down payment on your new place. Other options include down payment assistance programs, gifts from family, or borrowing from your retirement accounts.
How much home can I afford?
The amount of home you can afford is a complicated question. Although your lender will determine how much they are willing to lend you, that’s not necessarily how much your monthly budget can afford.
So, take some time to comb through your budget to determine what size mortgage payment you can comfortably afford. From there, use one of the many calculators to help you determine an ultimate purchase price based on the currently available annual percentage rate you expect.