How to Buy a House with No Money Down

If you’re struggling to save for a down payment, you may be asking yourself, “Can I buy a house with no money down?”

In fact, you can buy a house with no down payment. Though most conventional loans do require a down payment, there are some programs that may help. Typically, government-backed programs might qualify you for no down payment. Creative financing options are designed to help qualified buyers get on the property ladder. Normally, without a huge up-front cash layout.

Government Programs for No-Money-Down Home Purchases

One of the ways of buying a home with no money down is government-backed loans. Two helpful government programs are VA loans and USDA loans.

VA Loans

VA loans are offered through the U.S. Department of Veterans Affairs. These loans are for eligible veterans, active-duty service members, certain military spouses, and survivors of military members. These loans facilitate buying a home with no down payment at all.

VA loans don’t require private mortgage insurance (PMI), which can be a positive. They also have competitive interest rates, and have lower credit score requirements. While there is a funding fee, it can typically be rolled into the loan. Hopefully making buying a house with no money down even more accessible.

To qualify for a VA loan, you need proof of military service, a stable income, and a credit score of 580 or higher (this varies by lender). The property you want to buy also has to meet VA appraisal standards.

USDA Rural Development Loans

If you’re wondering, “Can I buy a house with no money down in a rural area?” this loan program might be right for you. USDA loans are designed to increase homeownership in rural and some suburban areas.

To qualify for a USDA loan, the home has to be in a USDA-eligible area. Also, your household income can’t be higher than 115% of the area’s median income. In addition, the home must be your primary residence. You’ll also need a stable income and an adequate credit score.

VA Native American Direct Loan (NADL) Loans

This program allows eligible Native American and Alaska Native veterans to buy homes on federal trust land with no down payment. The program is also available to veterans married to a Native American or Alaska Native. Similar to other VA loans, there is no PMI requirement for NADL loans. Before the loan can be granted, The Veteran’s tribal or other sovereign governing body must enter into a Memorandum of Understanding with the VA.

State and Local Down Payment Assistance Programs

If you don’t qualify for federal loan programs, you might still have options at the state or local level. Many states and municipalities offer down payment assistance (DPA) programs that can help you buy a house with no money upfront. They may cover both your down payment and your closing costs.

Some of these funds are outright cash gifts or forgivable loans, while others do need to be repaid. Nevertheless, they reduce the amount of cash home buyers need to have upfront, making homeownership more accessible for Americans who are buying a home with no money down.

There are over 2,000 programs nationwide, including special programs for first-time home buyers, teachers, and first responders. Online, you can find reliable directories to help you locate programs in your municipality or state.

Most states have a housing finance agency (HFA) with programs to promote homeownership among low- and moderate-income families. These agencies typically offer competitive interest rates, down payment help, and buyer education courses, which can be helpful for families who are buying a home with no money down and need extra support.

Creative Financing Strategies

If you don’t qualify for government-backed zero-down payment financing, there are still ways of buying a home with no money down.

Seller Financing

In a seller financing arrangement, the seller acts as the lender, and the buyer makes payments directly to them, often with no down payment. These financing arrangements are often shorter-term than conventional mortgages, but that gives the new homeowner time to build equity and improve their credit so they can potentially qualify for a traditional mortgage to pay the seller the balance of the home’s price.

Lease-To-Own Agreement

This type of agreement lets you rent a home with the option to buy later. Under some agreements, part of your monthly rent is put aside in an escrow account to help with your down payment when you purchase the home. Leasing to own gives you time to improve your credit and save money without needing to qualify for a mortgage right away.

Co-Buying

Buying a home with a friend or a family member who has enough for a down payment can cut costs for both of you. Be sure to have documents drafted by a real estate lawyer to ensure everyone understands their obligations.

Using Gift Funds

You can use gifted money from family to pay for your down payment. The gift funds have to be documented correctly and come with a formal gift letter, but this is a great way of buying a house with no money down.

Borrowing from an IRA

First-time home buyers can withdraw up to $10,000 from an IRA without the normal 10% early withdrawal penalty if they are using the funds to purchase a home. Although careful attention needs to be paid to tax and repayment implications, borrowing from an IRA is another way of buying a home with no money down.

Pros and Cons of Buying a House with No Money Down

There are great advantages to buying a house with no money down. It gets you to home ownership faster, which means you can start building equity, and you don’t have to spend years scrimping and saving for a down payment while paying rent. This can be especially helpful in hot markets, where waiting even a few years could mean paying much more for a home.

However, buying a home with no money down means your mortgage will be larger. That means higher monthly payments and more interest paid over the life of the loan. You will also have less immediate equity in the home,

Buying a House with No Money Down

Can you buy a house with no money down? The answer is often “yes” as long as you meet the qualifications. However, a zero-downpayment home purchase is not right for everyone.

No-money-down programs are best suited for buyers with reliable income and solid credit who just haven’t been able to save for a large down payment. If you plan to stay in your home long-term and can manage the monthly payments, this can be a smart way to fast-track homeownership.

On the other hand, if your finances are tight, or you’re unsure how long you’ll stay in the home, it may be better to wait until you have more savings and flexibility.