You’ve probably heard stories from many homeowners who struggled for years to save up for a down payment, so you might assume that buying a home is impossible without one. But the reality is, there are options for purchasing without a down payment as well as alternatives for a more affordable, low down payment.
Of course, when you don’t make a down payment or put down only a small amount of money, that means that your monthly mortgage payment will be higher. You’ll want to be sure you can afford it – a house payment calculator can give you a good idea of what that payment will be. You can play with it, entering various down payments that reveal the difference between putting down nothing as compared to 10 or 20 percent, for example.
That said, if you decide you want to become a homeowner without making a down payment, you have two options for a zero-down mortgage: a VA loan or a USDA loan.
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VA Loan
To qualify for a VA loan, you must be an active-duty service member, a veteran or spouse of a deceased veteran, or a member of the National Guard. Additionally, you must meet one of the following requirements:
- Served 181 consecutive days of active service during peacetime
- Served 90 consecutive days of active service during wartime
- Served at least six years with the National Guard or Reserves, or at least 90 days under Title 32 orders with a minimum of 30 of those days consecutive
- Be discharged because of disability connected to your service
- Be the spouse of a service member who died from a service-related disability or in the line of duty
In addition to meeting one of those requirements, you’ll need a credit score of at least 580 to qualify. A VA loan is backed by the Department of Veterans Affairs and allows you to pay a one-time funding fee that is 2.3 percent of the loan value instead of paying for private mortgage insurance (PMI).
USDA Loan
Backed by the United States Department of Agriculture, USDA loans were designed to encourage development in suburban or rural areas. They have lower fees than other types of loans, and it’s possible to get one with no money down.
Both you and the home you plan to purchase must meet specific criteria to qualify. The home has to be located in a suburban or rural area. The USDA offers a map of eligible areas so that you can specifically look for a home in one or check to see if the one you’re interested in will qualify. Anywhere outside an orange zone will qualify as a rural area, but the home can’t be a working farm. It must be a single-family structure, and you’ll have to live in it as your primary residence.
Additionally, the combined gross income of your household can’t be greater than 115 percent of the median income of the county the home is located in. Your FICO score must be 640 or more, and your debt-to-income ratio can’t be higher than 45 percent.
Low Down Payments For Those Who Don’t Qualify for a VA or USDA Loan
If you don’t qualify for either loan, it may be possible to get one with as little as 3 percent down, but you will have to pay PMI as a condition when putting down less than 20 percent of the amount of the loan. While you’ll be paying more until you achieve 20 percent equity in your home, it can make becoming a homeowner possible for those who haven’t been able to save a more significant amount of cash.
