Becoming a first time home buyer and getting approved for a zero down payment mortgage loan is a dream come true for many people in this country. Most Americans want to own their own home, but the down payment is often a sticking point for many people. If you are looking for first-time home buyer loans with zero down but don’t want to put any money down, what are your options? Keep reading to learn more about no money down home loans. If you have questions on how to buy a house with no money or want to apply for a first-time home buyer loans with bad credit and zero down, our lending experts at the RefiGuide can help you.
Can a First Time Home Buyer Get Approved for a Zero Down Mortgage?
Yes, it’s possible in limited circumstances to buy a house with no money down, especially if you are a first-time buyer.
There are some first-time home loans with zero down, but you will have to do more hunting for them than in years past.
Most FHA and conventional loans require at least 3% down, but there are no down payment home loans out there for rural buyers and veterans, among others.
These home loans with zero down create options for buying a home without putting a lot of money down.
Furthermore, many states offer various types of home purchase assistance for first-time buyers and those with lower incomes.
These programs are often government grants and may cover the whole down payment so you don’t have to come up with a lot of cash upfront.
Grants do not have to be paid back, so a first-time home buyer loans with zero down is within reach in many communities. Let’s explore how you can buy your first house with no money down.
Zero Down Home Loans for First Time Buyers?
There are several $0 down mortgage programs created for first time home buyers. The RefiGuide will show how to get a zero down home loan. These no down payment home loans are just what they sound like: They are loans that allow you to buy a home without a down payment. You may be able to finance 100% of the purchase price of your first home. In many cases, these zero down payment loans are backed by the US government, such as the VA or USDA. These government agencies back the loans so lenders are willing to take a higher level of risk.
The big benefit of a zero money down home loan is that a first-time home buyer doesn’t need to come up with a lot of cash to buy a house. Coming up with a large down payment can be a problem for a first-time home buyer without equity in a previous home.
Eligibility standards for zero money down home loans vary by program and lender. Your credit score, debt-to-income ratio, and income will dictate if you qualify for a zero money down mortgage. Furthermore, keep in mind that putting no money down means you walk into your new home with little equity and a higher payment. Getting approved for a no down payment mortgage has never been more accessible. Take a few minutes and let the RefiGuide help you shop and compare the best zero down first time buyer home loans from banks and mortgage lenders you can trust.
Are there still First-Time Home Buyer Loans with Bad Credit and Zero Down Payment?
A few years ago there were zero-down home loans for first time home buyers with low credit scores all over the place. Many banks and mortgage companies were encouraged by Congress to offer high risk home loans with zero but many first time home buyers with bad credit defaulted on these loans. New laws were created to prevent lenders and banks from encouraging first time homebuyers with bad credit to get approved for home loans they could not afford.
Today most of the bad credit zero down home loan programs have disappeared. However, the VA still offers first-time home buyer loans with bad credit and zero down if the borrower has VA loan eligibility and they have compensating factors that convince the underwriter that they are worth the risk.
FHA continues to insure first-time home buyer loans with bad credit and zero down, but you must be able to document your income with traditional means. FHA lenders also expect you have a debt to income ratio (DTI) below 43% to qualify.
How Do You Buy a Home with No Money Down?
Buying your first home without a down payment might seem like a pipe dream, but it’s possible with the right program.
With certain government-supported home loans, first-time home loans with no money down can help you get into your first home without coming up with thousands upfront.
Not all banks and credit unions encourage first time home buyer loans with zero down, so we recommend working with experienced mortgage lenders that understand the process.
Here are the typical steps to apply for a zero down mortgage:
Apply for a USDA or VA Mortgage with $0 Down Payment
The most common zero down mortgages available today are through the VA and USDA. VA loans are intended for active military and veterans, and no mortgage insurance is required. To get a VA loan with zero down, you have to meet certain military requirements, such as serving for 90 straight days during a war or 181 days during non-war time. VA loans are certainly the most popular zero down first time buyer program.
USDA loans are made for buyers in rural areas with moderate incomes and also offer no money down options. To receive a zero down USDA loan, the home must be situated in a rural area as designated by the USDA. Your income cannot be more than 115% of the area’s median income if you are applying for USDA loans.
Use A First-Time Home Buyer Mortgage to Pay The Down Payment
If you do not qualify for a USDA or VA home loan with zero down, there are many first-time home buyer grants available in most states and large cities. These VA loan programs may offer low-interest loans or grants to pay for your down payment and closing expenses. These no down payment mortgage programs are funded by the US government.
Some first-time home buyer zero down mortgage programs may offer second mortgages that can be used with your first mortgage to cover the down payment and closing expenses. For instance, the Fannie Mae HomePath Ready Buyer program provides up to 3% closing cost help for qualified buyers who purchase a FNMA-owned home.
If you’re interested in buying a house but would rather keep your money in savings, there are several options available. Government-backed loans, such as VA loans for veterans and USDA loans for those purchasing homes in rural areas, can help you qualify for a zero-down payment. FHA does not offer down payment assistance or zero down FHA loans but they do allow gift funds from family to help you with a down-payment.
More Niches Loans for Special 100% First Time Home Buyers
Doctor Loans – Doctor Loan requirements need a credit score between 680 and 740, employment verification, an assessment of income and debt-to-income ratio, a valid medical license, and the borrowing limit depends on the lender and location. Doctor loan programs are more accommodating of high student loan debt and take into account the borrower’s future earning potential.
First Responder Loans – These unique no money down home loans offer down-payment assistance and reduced closing costs for eligible borrowers.
Heroes First Home Loans – You may qualify for Heroes First Loans if you are currently serving in the active or reserve military, or if you are a retired member of the Army, Marine Corps, Coast Guard, Navy, Air Force, National Guard, or Space Force. The Heroes First programs are unique VA loans that should be honored for qualified military veterans.
Ask For A Gift From a Family Member
Another option to have a zero down home loan is to get a gift from a family member to cover the down payment. Most lenders allow gifts for down payments, but you will need to produce a gift letter from the donor stating that the money doesn’t need to be paid back. These are very popular down-payment assistance methods that allow zero down home loans for first time buyers.
Get Mortgage Company to Pay Closing Costs
Another option to reduce your expenses when buying a first home is to negotiate for the lender to pay the closing costs. They may do so in exchange for a higher rate or loan balance.
This method will reduce what you need to pay out of pocket. Just remember that you will pay interest on the closing costs over the life of the loan. But this can be worth doing if you need to reduce your cash outlay when buying your first home.
Other First-Time Home Buyer Mortgages With Low Money Down
There are limited options for no money down home loans, so if you cannot get a VA, USDA, or local home grant program with 100% financing, you will need to find the next best thing – low money down home loans. Are you looking to buy a house with low down payments with an affordable monthly payment? Fortunately, you do not usually have to put down 20% to buy a home these days. Here are some options to help you buy your first home with a low down payment:
Conventional 97
The Conventional 97 loan is offered by Fannie Mae and Freddie Mac. It offers a 3% down payment and has competitive interest rates. These conventional loans are backed by Fannie Mae and Freddie Mac, so the terms are quite reasonable. To qualify as a first-time home buyer, you will need a 620 credit score and a DTI of 50% or less.
HomeReady Mortgage Program
The HomeReady program is offered by Fannie-Mae and helps first-time, low income home buyers. This program allows you to put down as little as 3% and has quite flexible loan requirements. There is private mortgage insurance with this low down-payment loan, but you can always refinance out of that later or request to have it waived once you have earned enough equity. You can use a gift or grant to cover your down payment.
If you qualify for the Good Neighbor Next Door program through HUD, you may be eligible to purchase any HUD home at 50% of its listing price with only a $100 down payment!
FHA Loans
Another good option to save money as a first-time buyer is the FHA loan program. Backed by the Federal Housing Administration, the FHA loan requires only a 3.5% down payment and features a competitive interest rate. You need to have at least a 580 credit score and a DTI of 50% or less. You will need to pay for mortgage insurance, but the FHA loans are one of the best options for people with lower income and buying a home for the first time. The mortgage insurance premium will be factored into your monthly payment with taxes and homeowners insurance.
If you are still having trouble coming up with a down payment for your first home, here are some other proven options to try:
Ask the Mortgage Lender to Pay Closing Costs
You may have to come up with a 3% or 3.5% down payment, but with closing costs on top of it, this can be too big of a lift for a first-time home buyer. You can ask the lender to cover your closing costs by slightly raising your interest rate. This can save you thousands out of pocket.
Use A Co-Borrower
You also may want to buy a home with a family member or friend so you can split the down payment. Make sure that you have a clear agreement with the co-buyer and that it is understood how the mortgage and expenses for the home will be paid.
Borrow From 401k
Many 401k programs allow you to borrow from your retirement savings for a house down payment. You can usually borrow up to 50% of your vested balance, up to $50,000. The loan usually needs to be repaid within five years with quarterly payments. Be aware of how borrowing 401k funds will affect your retirement; during the payback period, you will not be getting the same investing benefits that you did before you borrowed the money.
1st Time Buyer Frequently Asked Questions
Are zero down mortgages a good idea?
Of course if you do not put any money down, you will likely pay more interest over the life of the home loan. However, that does not mean you should not do it. If you have the ability to stop renting and become a homeowner with a zero down mortgage as a first time home buyer you should do it, as long as you can afford the monthly payment.
How do you qualify for first-time home buyer grants?
Fortunately, government, private, and nonprofit programs offer first-time homebuyer grants that don’t need to be repaid. These grants typically help bridge the gap between your savings and a down payment, and some may also provide assistance with closing costs, interest rate discounts, or loan forgiveness. However, first-time homebuyer grant programs come with certain requirements. To qualify, you must meet income limits as well as credit score and occupancy criteria.
What is a down payment assistance program?
Many first time home buyers have access to local, state and federal home buying grants that include down payment assistance. In many cases, the minimum credit score ranges of 660 and up to 680, depending on loan type. The CalHFA’s income limits and down payment assistance requirements are based on the specific area you are looking to buy house with no money. There are many state and local home buyer grants available to help facilitate, zero down home loans for first time buyers this year.
What is considered a first time home buyer?
If you’ve never owned a property, you’re considered a first-time buyer. However, if you previously owned a home but sold it, you no longer qualify as a first-time home buyer. The same applies if you sold your home to live with your parents or separated from a partner with whom you had a joint mortgage. Whether you want FHA or conventional loans, the first time home buyer classification offers financial benefits worth considering. People frequently ask us, “When are you considered a first-time home buyer again?” Some lenders may consider you a 1st time buyer again, if you haven’t owned a home in the past three years, this period is calculated starting from the date of settlement.
How does Fannie Mae Define a first time home buyer?
Fannie Mae defines a first-time homebuyer as a borrower who meets the following criteria: they are purchasing the security property, will reside in it, and have not had ownership (sole or joint) in a residential property during the three-year period preceding the purchase date of the security property. Fannie Mae does not directly offer zero down loan programs for firs time home buyers, but they do allow home buying grants that enable a first time home buyer to get approved for a mortgage with no down-payment. Fannie Mae offers conventional loans with low competitive interest rates and reasonable down-payment requirements for 1st time home buyers.
Does co-signing affect first-time home buyer?
The FHA offers first-time home loans that are government-backed through the Federal Housing Administration. With an FHA loan, you can purchase a home with a lower credit score and a down payment as low as 3.5%. If you wish to obtain an FHA loan with a co-signer (you can have up to two), your co-signer will need to meet a few basic criteria.
Summary on First Time Home Buyers and No Down-Payment Loans
First-time home buyers often struggle with down payments and closing costs. Fortunately, there are still zero down home loans and first time home buyer assistance programs that can minimize or even eliminate your cash outlay when buying your dream home. The RefiGuide offers an online lending platform to help you shop for these no down payment mortgage loans with no application fee.
First, see if you qualify for a VA or USDA loan; these programs are the easiest way to get a zero money down mortgage today. If not, check programs in your state and city to find any grant or low-interest loan programs for first-time buyers. You may be able to tap government funds to pay for your down payment and closing costs. If you have questions about buying a house with house with no money or are ready to apply for zero money down home loans, the RefiGuide can help you.
About RefiGuide
Bryan Dornan is a financial journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has founded several mortgage and marketing companies and has worked as a loan officer and mortgage broker in the industry for over 25 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, and Linkedin
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