So you want to buy a home, but the lack of a down payment is holding you back from your dreams of homeownership? Luckily there are options for potential homeowners that want to purchase a home but don’t have thousands saved to make a down payment. That’s right! You can buy a house with no money down.
Let’s explore how to buy a house with no money.
Zero Down Mortgage – Can I Buy a House with No Money?
First things first, it is possible to buy a house with no money. Although it can be tricky, there are several options available to people looking to purchase a home without any cash available for a down payment.
As we share your options, you’ll notice that there are only a handful of loan opportunities for this type of home purchase. But the important thing is that there are real opportunities available for homebuyers to move forward without a down payment in the bank.
The reason that you will face limited options is that most lenders are unwilling to take a risk by offering a mortgage with no money down. When a buyer puts money down to build equity in the home, lenders are more comfortable with the risks. It is not uncommon for borrowers to make a 20% down payment on their home purchase, which can easily amount to thousands of dollars. With that, it is easy to see how this high down payment burden presents a major financial hurdle for many potential home buyers.
Without federally backed loan programs, the opportunity to buy a home without a down payment would be essentially nonexistent.
How to buy a house with no money
If you want to buy a house with no money, you’ll need to consider two specific loan programs. The federal government offers these federally backed loans to allow some home buyers to purchase without a down payment.
Here are your two options.
The Department of Veterans Affairs backs the VA loan. If you qualify, you can buy a home without any down payment required. Plus, you can pay an upfront funding fee to avoid long-term mortgage insurance.
In order to qualify for the VA loan, you’ll need to meet specific military service requirements. There are a few ways to qualify including:
- Serving as an active-duty service member for 90 consecutive days during wartime and 181 consecutive days during peacetime.
- Serving as a member of the National Guard or Reserves for at least 6 years.
- Being a spouse of a service member who died while on duty or a service-related disability.
If you want to pursue this loan option, you’ll need to obtain a letter of eligibility for your loan officer through the Department of Veteran Affairs. You can check your eligibility on the Department of Veterans Affairs site.
Beyond qualifying as a veteran, you’ll need to meet some financial requirements. For example, you’ll need a credit score of at least 620.
The USDA loan is another federally backed loan through the United States Department of Agriculture. The goal of the program is to encourage development and community building in rural and suburban areas. If you are looking for a property in an area that qualifies for a USDA loan, it could be a good fit to secure a property with zero money down.
You can find out if a property would qualify for a USDA loan with the help of this map. Anything outside of the highlighted orange areas would qualify for a USDA loan on this map. However, the property cannot be a working farm and you must use the single-family home as a primary residence.
In addition to a qualifying property, your household cannot earn more than 115% of the county’s median income. Plus, you’ll need a credit score of at least 640.
How to buy a house with no money down and bad credit
If you have bad credit and no money available for a down payment, then it will be more difficult to obtain a loan. The VA loan and the USDA have credit score requirements of 620 and 640, respectively. With that, you’ll likely need at least fair credit to buy a house with no money feasibly.
Luckily, a bad credit score shouldn’t stop you in your tracks. Instead, take some time to improve your credit score. Take advantage of our free resources to help you boost your credit quickly. Once you’ve given your credit score a boost, reenter the home buying arena with or without a down payment.
How to buy a house with no money down as a first-time buyer
You can use the VA and USDA loans to buy a house with no money down. Both programs are willing to work with first-time home buyers. As long as you meet the other eligibility requirements for the loan, either program will be ready to work with you.
Is it a bad idea to buy a house with no money down?
Although it may seem like a dream come true to purchase a home without saving up for a down payment, it may not always be the best option.
When you take on a mortgage without a down payment, you’ll essentially be taking on more debt. While that may be okay in some situations, it will depend on your unique circumstances.
Benefits of no money down mortgage
The major benefit of a no money down mortgage is that you can move into a home to call your own. You’ll have the opportunity to start building equity in a property. Plus, you can potentially take advantage of the benefits of house hacking to dramatically lower your living expenses.
Drawbacks of no money down mortgage
The biggest drawback of a no money down mortgage is that you’ll be taking on more debt. Depending on your situation, taking on too much debt could be too big of a burden for your budget.
Additionally, you should expect to receive less favorable loan terms when you forgo a down payment. This is to help the lender offset the risk of lending to a borrower without a down payment.
If you would prefer to save for a down payment, then check out our top tips.
Is a zero down mortgage right for you?
If you are considering a no money down mortgage, take some time to look at your finances. It is critical to take an honest look at your finances before moving forward.
If you are in a strong financial position, then this could be a safe move. If you are already facing financial struggles, adding a mortgage to the mix could be a bad choice. Read through our personal finance guide to help you set up your financial foundation before jumping into homeownership.
The bottom line
Homeownership is a big step in any financial journey. If you are hoping to buy a house with no money down, then consider house hacking as a way to further lower your housing costs. With the right property, you could potentially house hack your way to living for free in your new home!
Take a look at our ultimate guide to house hacking to find out more about this amazing financial opportunity.