According to data from the Federal Reserve Bank of St. Louis, the average selling price for a home in the United States is $428,700 in 2022. While conventional wisdom may say that it’s best to save a 20% down payment before buying a home, most Americans will struggle to create a plan to save $85,000 while also paying rent and utilities on their current property.
Thankfully, there are a few options you can use to buy a home with less than 20% down — some of which don’t require any down payment at all. Learn how to buy a home with no money down using a government loan with Benzinga’s guide below.
How to Buy a House With No Money Down
The only way to buy a home with zero down payment is to use a government-backed loan. Government-backed loans are loans that include insurance from the federal government, making them less risky for lenders. As a result, mortgage loan providers can offer them with less strict requirements when compared to conventional mortgage loans.
The VA loan program and the USDA loan program both offer options that may allow you to buy a house with no money down. While both loan programs have strict requirements, those who do fit the parameters have access to affordable home financing without thousands of dollars in the bank.
Veterans Affairs (VA) loans are government-backed mortgage loans with insurance from the U.S. Department of Veterans Affairs. The VA loan program was designed to help members of the armed forces or those who have served find more affordable housing. To qualify for a VA loan, you must meet at least one of the following criteria:
- Served 90 consecutive days of active service during a period of wartime
- Served 181 consecutive days of active service during a period of peacetime
- Served fewer than the above number of active service days but were honorably discharged because of a service-related disability
- Be the spouse of a service member who died in the line of duty or from a service-related disability or injury
The branches that may qualify for the VA loan program include the following:
- Air Force
- Space Force
- Coast Guard
- U.S. Public Health Service (USPHS)
- National Oceanic and Atmospheric Administration (NOAA)
If you qualify for a VA loan, you won’t need to bring a down payment to the closing table when you get a mortgage loan. However, you will need to pay a VA funding fee equal to 2.3% of your loan’s value. You will also need to retrieve a Certificate of Eligibility (COE) confirming your service from your local VA office before you can apply for your loan.
You don’t need high credit or to be completely debt-free to apply for a VA loan. However, individual lenders issuing these loans may have credit and debt requirements in place for borrowers. As a general rule, you’ll need a credit score of at least 580 points to be approved for a VA loan.
USDA loans are insured by the United States Department of Agriculture (USDA), and you can use a USDA loan to buy a home in a rural area with $0 down. In order to qualify for a USDA loan, the home that you want to purchase must be located in an adequately rural or suburban area as defined by the USDA. You can view a list of qualifying areas using the USDA’s map here. Enter your property’s address to see whether it qualifies for purchase with a USDA loan.
USDA loans also have income limitations. You cannot earn more than 115% of the median income of the county where you want to buy your home. You can use the USDA’s income calculator here to see whether your income qualifies you for loan approval.
Like VA lenders, USDA loan providers may also institute their own set of lending criteria that limits who qualifies for a loan. As a general rule, you should have a credit score of at least 640 and a debt-to-income ratio of no more than 45% to qualify for a USDA loan.
Are No Down Payment Mortgages Fee-Free?
If you choose to buy a home using a loan that does not require a down payment, you won’t need to bring thousands of dollars to the closing table when you sign on the dotted line to take on your loan. While the down payment is usually the largest financial hurdle homeowners face when buying a home for the first time, it is not the only cost that comes with making the jump from renting your space to owning it.
Mortgage loans also include closing costs. Closing costs are fees you pay to your lender or third-party service professionals to complete your loan with everything you need. In some cases, a closing cost might not be required to close on your loan but is still a best practice when buying your first house. Some of the closing costs you might face when closing on your mortgage loan include:
- Closing costs and fees: A number of closing costs come with finalizing a mortgage loan. For example, before you buy a property, your mortgage loan company will run a search on the title of the property to be sure that the person selling the home to you has the legal right to do so. The company will also take a few steps to prepare your loan, ensure that the property you’re moving into meets the terms of your loan and may put money in escrow to cover at least the first year of your property taxes.
The specific items you’ll need to cover when you close on your loan will vary depending on the specifics of the lender you’re working with and the type of loan you’re applying for. As a general rule, you can expect to pay between 3% and 6% of the total value of your loan in closing costs. This means that if you’re borrowing $200,000 to buy a home without a down payment, closing costs will come out to around $6,000 to $12,000. Closing costs will be itemized by your lender and submitted to you using a document called a Closing Disclosure.
- Home appraisal: A home appraisal is a special type of inspection that provides you with a general idea of how much your home is worth outside of the agreed-upon purchase price. Home appraisals are required by your lender because the lender cannot loan you more money than your home is worth — and you’ll be required to pay for it as a part of your closing costs.
- Home inspection: A home inspection is not the same thing as a home appraisal. While an appraiser will only provide you with a general idea of the value of your property, they will not take a tour of the property testing its systems. A home inspector is a professional who will attempt to identify any areas of damage where you might need to spend money after moving into the property.
While home inspections are not usually required to buy a home, it’s a smart idea to get one as a homeowner. Otherwise, you could find yourself on the hook for tens of thousands of dollars in repair bills after spending all that money closing on your home loan. The average cost of a home inspection is between $300 and $500, so be sure to include this figure when calculating the amount of money you need to buy a home.
- Pest inspection: Like a home inspection, pest inspections fill in one of the gaps left by the appraisal you must purchase in order to close on a mortgage loan. Home inspectors are not specifically trained to identify the sometimes-subtle indications of pest activity, which means your inspection could leave you without the full picture of the damage in your property. Scheduling an individual home inspection usually costs around $100 to $150.
- Termite certification: If you’ve owned a home in the past, you probably already know that termites are one of the most destructive types of pests that you can have on your property. Professional termite extermination company Orkin estimates that termites alone cause between $1 billion and $2 billion in property damage each and every year. As such, it’s obvious why you’d want to be 100% positive that there are no termites or signs of termite activity in any property you purchase.
Any licensed home inspector will be able to spot and identify major termite infestations or signs of serious termite damage. However, if you live in an area where termite damage is especially common, you might want to hire an inspector who specializes in termite activity to review your property before purchase. Your termite inspector will review both the interior and exterior of the property to identify any termite problems or potential hazard areas you’ll need to deal with after you purchase the property. Termite inspections cost between $75 and $150 in most parts of the country.
- Moving costs: While you’re wrapped up in the costs associated with closing on your mortgage loan, you might forget about the costs associated with moving. Even if you’re moving just across town, you may need to hire a moving team to safely transport large pieces of furniture, musical instruments or any other heavy or delicate items. The average cost of long-distance moving is between $900 and $4,500, so be sure to factor in the cost of a moving team if you know you’ll be traveling more than 400 miles from your current home when you move.
- Insurance: Most mortgage companies will require you to provide proof of active homeowners insurance coverage before you close on your loan. The average cost of homeowner’s insurance in the United States is $1,848 annually, but the price you’ll pay may vary depending on factors like the location of your home, your home’s value and your credit score.
These are just a few examples of some of the many expenses that come with owning a home. If you’re a homeowner who doesn’t yet have an emergency fund, you may want to consider prioritizing this account over retirement savings and debt reduction. You might also want to consider investing in a home warranty policy, which can provide you with more affordable repairs and replacements for systems and appliances in the event that something breaks after moving in.
Compare Government-Backed Mortgage Loans
Not every mortgage lender offers government-backed mortgage loans — and not every lender that does offers no down payment options. If you’re looking to buy a home without a down payment, it’s important to begin your lender research early to secure affordable funding.
Benzinga offers insights and reviews on the following mortgage lenders. Consider beginning your search for the right government-backed mortgage loan using a few of the links below.
Frequently Asked Questions
What credit score do you need to buy a house with no money down?
To buy a home with no money down using a VA loan, you’ll usually need to have a credit score of at least 580 points. If you’re looking to buy a home with no down payment on a USDA loan, you’ll usually need a credit score of at least 640 points. Individual lenders may institute higher credit score requirements, even for government-backed loans.
Is it smart to put no money down on a house?
It is not smart to put no money down on a home. While putting no money down on a home can help you make the jump from renting to building equity faster, it leaves you with no initial equity in the property that you buy. This means that you might be at a greater risk of foreclosure and that you’re unlikely to be approved for a cash-out refinance if you run into a financial emergency. If you can afford to bring a down payment to the closing table when buying a home, it’s almost always a good idea to do so.
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