How To Get A No Money Down Home Loan

April 14, 2020
man holding sign that says no money down

Are you interested in buying a home but have no money to put down towards a loan? A down payment is the cash money you have to put towards a home purchase. It is usually a requirement made by mortgage lenders in order for you to qualify for a mortgage. But a large down payment may make purchasing a home an unreachable goal. We’ll show you how you can still get a home with little or no money down.

Even if you are shopping for a modest home, a 20% down payment can mean tens of thousands of dollars. Having such a large amount of money put aside is difficult and maybe unrealistic. But maybe you are confident you are ready for homeownership and a mortgage payment. This is why we want to talk about how to get a home loan with little or no money down.

What is the purpose of a down payment?

Calculator and one hundred dollar bills to figure out a down payment on a house

The down payment is not borrowed and as such plays an important role when you buy a home. A mortgage lender values your down payment as it shows commitment on your part. Because the money you put down offsets the total loan amount, it lowers the risk the lender takes when extending you the loan. It also shows the seller of your new home that you are serious about buying the home.

Where do I get the down payment?

The money for a down payment can come from:

  • Your own savings.
  • The money you get when you sell a house. (You’ll need deposit money prior to selling your home.)
  • Gifts and grants from family, employers and nonprofits.

How much is a down payment?

Many lenders prefer you to put down 20% of the purchase price and commonly, this is what most people believe they have to have in order to buy a home. But really any amount can be your down payment. Your down payment is determined depending on the loan product and the mortgage lender. Some loans require as little as 3.5%, such as FHA loans. Make sure you educate yourself on what mortgage loans are out there and what down payment requirements exist.

What are the consequences if I don’t put 20% down?

Private mortgage insurance application

PMI

If you opt to put less than 20 percent down, many mortgage banks will charge you PMI, or Private Mortgage Insurance. PMI protects lenders should you stop making payments on your mortgage. If you default on your loan, PMI will repay that portion of the loan. PMI will increase your monthly mortgage payment.

Interest Rate

teeter totter with a percentage and small house

Additionally, the amount of your down payment can affect your interest rate. Commonly, lenders offer lower rates if you are contributing a large down payment.

Loan Amount

Finally, a down payment also determines the amount you can borrow. Banks not only consider your credit score and debt, but they also look at the loan-to-value (LTV) ratio as part of the mortgage approval process. The larger your down payment, the better your LTV will be.

Negative Equity

If you opt to put nothing down or a low amount, you run the risk of negative equity. For example, if you put 5% down and the market changes and lowers 6%, you will owe more than the house is worth. A larger downpayment lowers the risk of negative equity.

What are the benefits of a no money down home loan?

Yes, certainly there are benefits to not having to put money down on a new home:


  • You don’t have to put cash down.
  • You may be able to buy sooner rather than wait.
  • You have more money for expenses or renovations to the new home.

Who offers mortgages with no money down?

There are options out there. Here are some examples:

VA Loans

VA Loan application

A VA loan is a mortgage made by a lender and guaranteed by the U.S. Department of Veterans Affairs. It is available if you are a current or former member of the military, including some in the Reserve, National Guardsmen and surviving spouses. You must provide a certificate of eligibility.

USDA Loans

The U.S. Department of Agriculture created a housing program in order to help development in rural areas. Its loan is a zero down payment. They are available to moderate- and low-income borrowers.

Credit Unions

Credit union symbol

Some lenders, like credit unions, offer their own zero down payment mortgage loans. You would need to check membership eligibility requirements.

Special Programs

Special programs help certain classes of borrowers get into homeownership. For example, many banks across the country participate in the Doctor Loan Program, and some offer zero down options.

Man showing empty pockets

In Summary

If a no money down home loan is what you are after, educate yourself on what loans are out there and what requirements you need to meet. In all likelihood, the better your credit score and history the better chance you have at being approved for full financing. We hope we’ve helped in your home buying process in showing how a no money down home loan may be an option.