The industry standard when buying a house is to have a down payment of at least 20%. If you have less than this, it can be harder to get approval for a loan or to have your offer for a home accepted. That being said, it is still possible to get a mortgage without any down payment. But there are some limitations.
You Can Choose From Two Loan Types: USDA or VA
The only way you will be able to get a mortgage without any down payment is via a government-backed loan, specifically a VA or USDA loan. These loans are available with zero down because the government insures them. This means that if you fail to make payments, the government will. This dramatically reduces the risk for the lender, which is vital as risk is the big reason lenders are hesitant to accept mortgages with less than 20% down payments.
The United States Department of Agriculture backs USDA loans. These are designed to encourage people to move to suburban and rural areas. To qualify for a USDA loan, you must:
- Choose a home in an area that the USDA classifies as rural or suburban
- Choose a single-family home
- Make the home your primary residence
- NOT buy a working farm
- FICO score of 640 or higher
- A debt-to-income ratio of 45% or less
- Median household income that is 115% or less of the median in the county
VA loans are for those who served or currently serve in the military or National Guard. The Department of Veterans Affairs backs these. Instead of requiring mortgage insurance, these loans require you to pay 2.15% of the loan’s value once. This is a VA funding fee.
VA loans also require a 640 credit score or higher. Both service members and spouses of service members who died while in the line of duty are eligible.
There Are Low Down Payment Alternatives
If you don’t qualify for the VA or USDA loans, you will need a down payment, but it doesn’t have to be significant. Some lenders offer small down payments, but most will require you to get private mortgage insurance.