There are two types of mortgages that don’t require a down payment
The VA loan and the USDA loan.
The VA loan is available to military veterans, while the USDA loan is available to rural homeowners.
Both the VA loan and the USDA loan are backed by the federal government, which means that they come with a host of benefits, including low interest rates and easier to qualify for than a traditional conventional mortgage.
Both loans types are only for primary residences. A mortgage for investment properties are riskier and will always require a down payment.
Each loan has a very specific set of criteria you need to meet in order to qualify for a no down payment mortgage.
An experienced loan officer can look at your qualifying factors and tell you whether you’ll get approved for a loan or not. How a Mortgage Loan Officer can Help you from Start to Finish
VA Home Loan
To qualify for a VA loan, you must be an eligible veteran or active-duty servicemember, or the qualified surviving spouse of a deceased veteran.
You must also meet the credit and income requirements.
VA loans are offered by lenders. Veterans Administration does not finance these loans, they just provide lenders guidance on what they require for them to guaranty a the loan.
VA loans don’t have a down payment requirement, has no mortgage insurance, and offers lower interest rates than conventional loans.
A down payment could be required if you are looking to have more than one VA loan at a time.
USDA Home Loan
To qualify for a USDA loan, the home must be located in a rural area. The USDA defines rural as any community with fewer than 10,000 people.
There are two types of USDA loans. Direct and Guaranteed.
Direct loans are available to low- or very low-income borrowers who do not have access to decent, safe, and sanitary housing. This program offers payment assistance to temporarily lower the cost of a mortgage.
If you have very low income, then you will need to go directly to USDA to apply for the loan.
Here are some requirements for the direct program.
- Be without decent, safe and sanitary housing
- Be unable to obtain a loan from other resources on terms and conditions that can reasonably be expected to meet
- Agree to occupy the property as your primary residence
- Have the legal capacity to incur a loan obligation
- Meet citizenship or eligible noncitizen requirements
- Not be suspended or debarred from participation in federal programs
Properties financed with direct loan funds must:
- Generally be 2,000 square feet or less
- Not have market value in excess of the applicable area loan limit
- Not be designed for income producing activities
Guaranteed loans are issued by private lenders, who set the interest rates. These are for moderate income home buyers. These are also 100% financed, meaning zero down payment but is only for a primary residence and you must meet the income and credit requirements that each lender has set.
USDA restricts where a home can be purchased with the program. The home must be in a rural or suburban area. You can check if a property qualifys by going to USDA’s map of eligible areas.
On this map, anywhere outside of an orange zone qualifies as a rural area.
In addition, your home can’t be a working farm. It must be a single-family unit and you must live in the home as your primary residence.
USDA also has income restrictions. The combined gross income in your household cannot be more than 115% of the median income of the county your home is in. At a minimum, USDA requires that applicants have a stable income that is verifiable and likely to continue.
Lenders will verify income by requesting two years of income tax returns, past 30 days paystubs, past 2 years of W2s, to look for consistent employment.
USDA income limits for most counties:
- 1-4 member household: $91,900
- 5-8 member household: $121,300
Higher cost counties like San Diego have higher income limits.
These income limits do change from time to time. To get the most up to date information, you can check out the income limits here.
If you don’t qualify for either of these loan types, there are some low down payment options.
Loans with small down payments
An FHA loan is a mortgage that is insured by the Federal Housing Administration (FHA) and is considered a government loan.
Borrowers can put as little as 3.5% down on an FHA loan, making it a great option for those who don’t have a lot of money saved up.
FHA loans offer some great benefits, like:
- Available to borrowers with credit scores as low as 620
- Have more forgiving qualifying guidelines than other types of loans.
- Offer low interest rates
- Debt ratio requirements are much more lenient than a Conventional loan
Read more about the FHA loan requirements
A conventional loan is a mortgage that isn’t insured or guaranteed by the government. This type of loan typically requires a down payment of around 20% but there are some low down payment options.
Conventional 97 – 3% down payment
The Conventional 97 is a conventional loan that requires just a 3% down payment. This program is available to borrowers who have a credit score of at least 620.
The eligibility requirements are:
- The property must be your primary residence.
- You must be a first time home buyer
- Your total debt-to-income ratio (DTI) must be less than 43%.
- Minimum credit score is 620
Read more about the minimum down payment options for a conventional loan
Important Note: You may not have to make a down payment on a house, but there are buyers closing costs that you have to pay for. Closing Costs – How Much are Costs & Who Pays Them?
More info that may interest you:
- Earnest Money on a VA Loan
- Types of Home Loans 2022 – What are your options?
- Don’t do these things before closing on your VA Loan
- Whats the best loan for a first time home buyer?
- VA Streamline Refinance
- Benefits of an FHA Loan
- Don’t have a Down Payment – Get a Gift – What are Gift Funds?
- Townhome vs. Condo – What is the difference?
- Steps to apply for FHA Construction Loan
- 3 Major Advantages of Buying vs. Renting a Home