How to Buy a Home With No Down Payment

How to Buy a Home With No Down Payment

Buying a home with no down payment is possible through several government-backed and assistance programs. VA loans and USDA loans both offer 100% financing with no down payment required. Additionally, many state and local down payment assistance programs provide grants or forgivable loans that effectively cover your down payment on conventional or FHA mortgages. According to the National Association of Realtors (NAR), nearly 20% of first-time home buyers in 2025 used gift funds or assistance programs to cover their entire down payment, proving that zero-down homeownership is more accessible than many people realize.

The biggest misconception in real estate is that you need 20% down to buy a home. While a 20% down payment eliminates private mortgage insurance on conventional loans, it is not a requirement. The average down payment for first-time buyers was just 8% in 2025, and millions of buyers put down 3.5% or less through FHA and other programs.

VA Loans: Zero Down Payment for Veterans

VA loans are the most powerful no-down-payment mortgage option available. Guaranteed by the Department of Veterans Affairs, VA loans offer:

• Zero down payment on any loan amount up to the lender's limit
• No private mortgage insurance (PMI) — ever
• Competitive interest rates that are typically 0.25% to 0.5% lower than conventional rates
• Limited closing costs with restrictions on what lenders can charge
• No prepayment penalties

Who Qualifies for a VA Loan?

VA loan eligibility extends to active-duty service members, veterans, National Guard and Reserve members, and surviving spouses of veterans who died in service or from a service-connected disability. Most veterans need at least 90 days of wartime service or 181 days of peacetime service to qualify. You must obtain a Certificate of Eligibility (COE) to prove your entitlement.

For a comprehensive overview of eligibility, benefits, and the application process, see our VA home loans complete guide.

VA Funding Fee

While VA loans require no down payment or PMI, they do include a funding fee that ranges from 1.25% to 3.3% of the loan amount depending on your down payment (if any), whether you have used your VA benefit before, and your service type. This fee can be rolled into the loan balance. Veterans receiving VA disability compensation are exempt from the funding fee entirely.

USDA Loans: Zero Down for Rural and Suburban Buyers

USDA loans, backed by the United States Department of Agriculture, offer 100% financing for homes in eligible rural and suburban areas. Despite the name, USDA-eligible areas include many suburban communities near major metro areas. According to the USDA, approximately 97% of the geographic United States qualifies.

USDA Eligibility Requirements

• Location: The property must be in a USDA-eligible area. Use the USDA eligibility map at eligibility.sc.egov.usda.gov to check specific addresses.
• Income limits: Household income cannot exceed 115% of the area median income. For a family of four in most counties, this ranges from $90,000 to $130,000 depending on location.
• Credit score: A 640 minimum is required for automatic underwriting approval.
• Primary residence: The home must be your primary residence.

For full details on the program, read our USDA loans complete guide.

USDA Guarantee Fee

USDA loans charge an upfront guarantee fee of 1% of the loan amount and an annual fee of 0.35% of the remaining balance. These fees are significantly lower than FHA mortgage insurance premiums, making USDA loans one of the most affordable mortgage options available.

Down Payment Assistance Programs

Hundreds of down payment assistance programs exist at the state, county, and city level. These programs help buyers who do not qualify for VA or USDA loans achieve zero or near-zero down payment homeownership. Common types include:

Grants

Grants provide funds that do not need to be repaid. Many state housing finance agencies offer grants of $5,000 to $25,000 for first-time buyers who meet income and purchase price limits. These grants can cover your entire down payment and sometimes closing costs as well.

Forgivable Second Mortgages

Some programs provide a second mortgage that is forgiven after a set period, typically 5 to 15 years. As long as you remain in the home and continue making payments on your first mortgage, the second mortgage balance is gradually reduced to zero.

Deferred-Payment Loans

These are zero-interest second mortgages with no monthly payments. The balance comes due when you sell, refinance, or pay off the first mortgage. This structure keeps your monthly payment low while providing the down payment funds you need.

Community-Specific Programs

Many programs target specific professions or communities:

• Teachers and educators — Programs in many states offer $5,000 to $15,000 in down payment assistance
• Healthcare workers and first responders — Special programs available in over 30 states
• Low-to-moderate income buyers — HUD-approved counseling agencies can connect you with local assistance

Conventional Loans With 3% Down

While not technically zero down payment, conventional loans backed by Fannie Mae and Freddie Mac allow down payments as low as 3% for first-time buyers. Combined with a down payment assistance grant, your out-of-pocket cost can be effectively zero.

Fannie Mae's HomeReady and Freddie Mac's Home Possible programs are designed for borrowers earning at or below 80% of area median income. These programs feature:

• 3% minimum down payment
• Reduced mortgage insurance rates compared to standard conventional loans
• Homebuyer education requirements that prepare you for successful homeownership

Learn more about conventional financing options in our guide on how much house can you afford.

FHA Loans With 3.5% Down

FHA loans require just 3.5% down with a 580 credit score. While not zero down, FHA loans are commonly paired with down payment assistance programs to achieve near-zero out-of-pocket costs. FHA loans are popular among first-time home buyers because of their flexible credit requirements and lower down payment.

The trade-off with FHA loans is mortgage insurance. FHA charges an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount plus an annual premium of 0.55% that lasts for the life of the loan if you put down less than 10%. For more on how mortgage insurance works across loan types, see our guide on mortgage insurance and PMI explained.

Pros and Cons of No Down Payment Mortgages

Advantages

• Buy sooner: You can become a homeowner without years of saving for a large down payment
• Preserve cash reserves: Keeping savings available for emergencies, repairs, and moving costs
• Start building equity: Every mortgage payment builds equity instead of paying rent
• Take advantage of current prices: In an appreciating market, buying now at a lower price may outweigh the cost of waiting to save a larger down payment

Disadvantages

• Higher monthly payments: Financing 100% of the purchase price means a larger loan and higher payments
• Mortgage insurance costs: Except for VA loans, zero-down options include mortgage insurance or guarantee fees
• Less equity cushion: A small market decline could put you underwater, owing more than the home is worth
• Higher interest rates: Some zero-down programs carry slightly higher rates than conventional loans with larger down payments

How to Choose the Right Zero-Down Option

Your best path to a no-down-payment mortgage depends on your specific situation:

• Veterans and service members: VA loans are almost always the best option due to zero down payment, no PMI, and competitive rates
• Buying in a rural or suburban area with moderate income: USDA loans offer excellent terms with low fees
• First-time buyers in urban areas: Combine a 3% conventional or 3.5% FHA loan with down payment assistance
• Buyers with lower credit scores: FHA with down payment assistance provides the most flexibility

Compare offers from multiple lenders through DirectLender.com to find the best zero-down option for your situation. Different lenders specialize in different programs, and comparing at least three to five offers ensures you find the most competitive rate.

Steps to Buying With No Down Payment

1. Determine your eligibility for VA, USDA, or local assistance programs based on your service status, location, and income 2. Check your credit score and address any issues before applying — see our guide on credit score requirements for mortgages 3. Get pre-approved with lenders experienced in zero-down programs through DirectLender.com 4. Research down payment assistance in your state and county through your state housing finance agency 5. Compare total costs including interest rates, mortgage insurance, and fees across all your options 6. Work with a real estate agent familiar with zero-down transactions who can guide your offer strategy