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Can You Buy a Home With No Down Payment?

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Prior to the Great Recession, it was fairly easy to buy a home with no down payment. But the mortgage crisis and the financial crisis shook things up a bit. Credit requirements — especially for home loans — tightened substantially.

Many home buyers began turning to FHA loans (which require as little as 3.5 percent down as of this writing) once the number of zero-down mortgages began drying up.

Now that the Great Recession is fading away, things are changing again. Just as many home buyers thought that the FHA loan required a too-high down payment prior to the mortgage market problems, that mindset is creeping back – since it’s possible to find zero-down home loans again. Just remember, if you do get a mortgage, make a plan for how you’re going to pay those payments and track your plan using a tool like ReadyForZero.

Conventional Lending and Zero-Down Mortgages

While it’s not exactly easy to buy a home with no down payment in the current climate, it is possible if you can show that you have adequate income and a good credit score. You’ll also have to be willing to pay a higher interest rate. The price you pay for having no “skin in the game” is a mortgage rate that ensures that you’ll pay extra tens of thousands of dollars over the life of your home loan compared to borrowers who have down payments. You will also probably need to purchase private mortgage insurance (PMI).

In some cases, lenders will get a little creative with the financing. You might be able to take out two mortgages: The first is for 10 percent or 20 percent (depending on the lender) of the purchase price. This serves as your “down payment” — even though you aren’t actually putting anything down. The other loan is for the remainder of the purchase price. But before you do this, realize that the interest rate on the small mortgage serving as your down payment will probably be higher than the rate on your “real” mortgage.

There are other creative ways to avoid the down payment, from getting a gift from a close relative or friend, or participating in local housing programs that allow you to use “sweat equity” to help pay for your home. In the latter case, you do some of the work building your house, and helping build others’ homes, and in return you don’t have to worry about a down payment.

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Government Programs and Zero-Down Mortgages

On the other hand, if you qualify for certain government programs that could provide an avenue for you to buy a home with no down payment. One of the most popular loan programs that allow you to buy a house without a down payment is the VA loan program. This program is only available to military veterans and to their surviving spouses. Depending on your credit situation and income, you might qualify for a zero-down VA loan.

There are also government programs that will help you buy a home with no down payment if you are willing to buy in qualified rural areas, or in qualified high-crime areas. These programs are designed to help bring greater prosperity to certain areas with the introduction of homeowners. If you take the risk in rural or high-crime areas, you might be able to get a low-cost home without the need for a down payment.

As with all mortgages, zero-down home loans require that you show that you have good credit, and that you are likely to handle the payments. Someone is taking a risk on you, whether it’s a conventional lender, the government, or even the seller.

But Should You Buy a Home With No Down Payment?

Now that you know there are options for buying a home with no down payment, the question remains: is it a good idea?

In most cases, we’d recommend using a down payment when buying a house. This does a few things that will help you in the long run: (1) if you play your cards right and do your research, you’ll be able to get lower interest rates when you have a down payment; (2) by paying a portion of the cost of the house up front, you’ll be closer to having the house paid off than if you start with no equity in the home; and (3) the experience of saving up for a down payment will help you prepare for homeownership – which often requires having an emergency fund to deal with any unexpected repairs or maintenance issues that may arise.

While many individuals and families are eager to begin their new life as homeowners, it’s usually a good idea to wait until you have a down payment so that you can start that new life on stronger financial ground. If you’re currently deciding whether to take the leap into homeownership, use our Mortgage Resource Center to help get prepared. And also check out our blog posts on What Should You Do Before Buying a House, What Is a Good Credit Score for Buying a House, and How Much of a Mortgage Can I Afford.

Are you currently deciding whether to buy a house or how much of a down payment to use? Share your thoughts or questions in the comments below!

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  • http://www.thefrugalweds.com/ thefrugalweds

    Thanks for the information! This is great to include in the home-buying conversation. While we wouldn’t necessarily want to buy a house without a down-payment, it’s great to have all the facts.

    I think for us, we want to put down as much as possible on a house so that we’re not paying a high mortgage. If it takes us a few more years to build the right reserves, we’re OK with that. At this point though, we’re OK also not buying a house. You just can’t predict how housing prices will be in the future and we’re good not being locked into a mortgage.

    It’s a tough decision, I tell you – especially if you live in CA or NY like we do. A 3 bedroom house in our area costs upwards of $700K++. We have a long ways to save….

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      I think that’s very wise – on all points. It doesn’t always make sense to buy a house, as we’ve seen in the last decade. And I also agree that a bigger down payment is usually better. Sounds like you guys are on the right track! Although I understand the pain of living in a high-cost area for housing (Bay Area). Whatever you decide to do, best of luck!

  • chrisald

    I don’t really understand the mess about having a huge down payment for a mortgage. How about – you save all that money up and then turn it over to the bank and inevitably something needs fixing right after you move in and guess what, no cash! It just doesn’t seem to make sense. What’s the point?

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      This is a good point. Ideally, you would have a significant down payment and also have enough money left over to create a sizable emergency fund that would cover any “unexpected” expenses that might come up. I know that may not be feasible in all cases, but it’s a good goal to strive for and will protect people from falling into financially problems immediately after buying a house.

  • Roddy Pfeiffer

    If you don’t have the disposable income and self discipline to save money, you have no business saddling yourself with home ownership.

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      That’s one way to look at it. For some people, they are able to make the monthly payments – rather than pay rent on an apartment – but it would be hard for them to save money when paying the rent and other bills and trying to accumulate a down payment on top of everything else.

    • ADinks

      I have to agree with Benjamin. Your point is valid, and harbors a great deal of harsh truth, but it’s a bit too unrealistic. I know plenty of people who could afford a home…once they’re in it. But they can’t get into one because they can’t afford a down payment. Why? Rent is high. Add to that student loans, bills, commuting, medical costs, etc, and saving up a $30-40,000 down payment isn’t possible for a lot of people who could otherwise afford a monthly house payment.

      • Scott

        Agreed! Banks run all your paperwork (credit, income, etc. etc.) and pre-approve you for 265k to 380k lets say. The payments fit within your budget, all is well and your good to go. Except no deal because you can’t come up with the downpayment, 100% due within 30 days of singing the agreement and if you give them what you have in savings you then have no more savings or very little left over for those “emergencies”. That just doesn’t make sense to me still and I am truly trying to get it!

  • mrbofus

    “While it’s exactly easy to buy a home with no down payment in the current climate”

    Don’t you mean, “While it’s not exactly easy”?

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Yes, that’s a great catch! I’ve now fixed the typo.

  • https://marylandnewhomepurchase.com/ Buy a New Home in Maryland

    These programs are just another option for prospective home buyers. There is always the option to save and put 20% or more down on a home if qualified for a Conventional Loan this would eliminate the extra monthly cost of mortgage insurance.

    However, such easier to qualify for and less required down programs, make home ownership attainable for many more people. If you have found a city or town you plan to make home for a very long time. Although you take on more risks, the reward could be far greater than renting and helping pay for someone else’s property.

    • http://www.twitter.com/bwfeldman Benjamin Feldman

      Thanks for the comment!

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  • ADinks

    I am currently in the middle of shopping for a home. I am torn between a huge down payment and getting a USDA loan by buying in a rural area (I am already looking to buy in semi-rural areas as a personal preference). The MI for one of these is supposedly much less than for a typical FHA, but there is still MI. Most every older person I know, many of whom have experience in real estate or the mortgage industry, tell me I should get a USDA loan, avoid an FHA unless I have to, but also to avoid a huge down payment. They believe having the money on hand for a rainy day is wiser than blowing it all on a house. Example: I move in, have no savings, and 2 years in I need major repairs? A little MI on top of my monthly payment is not going to hurt if it’s like $40. Then again, knocking 30k off of my total cost at the beginning would lower my payments by a lot, and put me closer to owning the house. As I said, I am torn.

  • Bill

    Who the heck can do this unless they are rich. Savings is never going to happen but you bet I would pay my mortgage. I have destroyed my credit completely twice in job layoffs but never was even one day late with the rent. What does that tell you.

  • Lil25

    You forgot the most important aspect of USDA loans: you must be poor to qualify. Our annual gross income is around $115,000. We currently have $50,000 in savings and $58,000 in federal student loan debt at 6.8% interest. Because of the high interest rate, we want to take nearly all our savings and throw it at the student loans and buy a house with zero percent down. We know that we can afford mortgage payments and to build up our savings at the same time as soon as the student loans are eliminated. We thought we had found the perfect starter house – a 1600 sf home listed for $380,000 that was USDA eligible. Only, we’ve come to find out that, in order to qualify for a USDA zero percent down home loan, you have to be making less than $84,000/year. How does anyone making less than that afford the monthly payments on a $380,000 house!?

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  • http://www.springfieldballoon.com/ Lisa Swanson

    Thanks for the info. It’s always good to know your options for sure! No down sounds great until you said that it’s tens of thousands that you’d be paying back. Sometimes that is the only way people can go, and now it’s good to have some facts to look into.