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What is a zero-down mortgage?

All you need to know about zero-down mortgage options

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A zero-down mortgage is a home loan you can get without a down payment. While most mortgages require a down payment of 3% to 20%, some loan programs do away with this requirement. These mortgages make it easier for borrowers to buy a home, but they can be harder to get since they’re riskier for lenders than a traditional mortgage.

Learn more about getting a zero-down mortgage, the pros and cons of these loans and alternative options.

Key insights

  • Zero-down mortgages make it possible to buy a home without a down payment.
  • Loan and down payment assistance programs often reduce or eliminate closing costs and the down payment.
  • Low-down-payment options are available for borrowers who don't qualify for zero-down loans.

Zero-down mortgage definition

Zero-down mortgages are loans designed to help low- to moderate-income borrowers qualify to buy a home. These loans do not require a traditional down payment of up to 20%. Instead, they offer up to 100% financing so borrowers can buy a home today versus waiting years to save up enough money.

A zero-down mortgage makes it possible to buy a home with no down payment.

David Lee, a mortgage loan officer with the lender iQ Mortgage, said, "It can take a buyer many years to save for a down payment. If a buyer is qualified, using a zero-down mortgage can help them purchase their home without waiting. This is especially helpful for borrowers who have trouble saving a large sum of money."

A zero-down mortgage enables borrowers to participate in a rising market. Otherwise, home values and down payment requirements could rise faster than borrowers’ ability to save, locking out many otherwise qualified buyers from the housing market. A zero-down mortgage helps them buy now and start building wealth immediately through their home's rising equity.

The downside of these loans is that borrowers have very little home equity. If home values fall or they need to sell, they could end up owing more than their homes are worth. This leaves them stuck in their homes, unable to move to be with family, take advantage of job opportunities or get into better neighborhoods.

» MORE: Homebuying checklist

How can you get a zero-down mortgage?

If you're interested in getting a zero-down mortgage, you have numerous programs to consider. Many have specific requirements, so make sure you qualify before applying.

  • Veterans Affairs (VA) loans: Veterans, active-duty soldiers and their spouses qualify for zero-down mortgages through the VA. These loans have no down payment, competitive interest rates, limited closing costs and no mortgage insurance. VA loans are a lifetime benefit, and you may qualify to use this loan program multiple times.
  • Department of Agriculture (USDA) loans: USDA loans help low- and moderate-income borrowers in eligible rural areas purchase homes with up to 100% financing. While USDA loans don’t require mortgage insurance, they do charge an upfront guarantee fee (1% of the loan amount) and an annual fee of 0.35% of the loan amount.
  • Bank of America Down Payment Grant: This grant program provides a grant of up to 3% of the home purchase price, up to a maximum of $10,000. It does not require repayment. Borrowers can get a zero-down mortgage on qualified loans by pairing this grant with the bank's Affordable Loan Solution.
  • Chenoa Fund for Federal Housing Administration (FHA) loans: Borrowers take out an interest-free second mortgage through CBC Mortgage Agency for 3.5% or 5% of the purchase price. After the borrower makes 36 (3.5%) or 120 (5%) consecutive, on-time payments on their FHA first mortgage, the second loan is forgiven.
  • 80/20 mortgage. Some borrowers may qualify for a "piggyback" mortgage of 20% of the purchase price, which eliminates the need for a down payment. These loans usually have a higher interest rate, and there may be additional fees or costs for adding a second mortgage on top of your first.

Other programs reduce or eliminate closing costs and down payment requirements for qualifying borrowers. These programs are typically offered by nonprofits, governmental bodies and other organizations. The U.S. Department of Housing and Urban Development has a list of resources by state.

Additionally, borrowers can ask their lender and the home seller for assistance buying the property. The lender can provide credits that reduce upfront costs. Home sellers can provide concessions that help cover closing costs.

» MORE: How much house can I afford?

Advantages of a zero-down mortgage

Zero-down mortgages offer several advantages:

  • No down payment makes home purchase more affordable.
  • You can use your savings instead for home improvements, moving costs and other costs associated with homeownership.
  • You can start building family wealth sooner through appreciation and loan paydown.
  • Many zero-down mortgages don’t have mortgage insurance.

Drawbacks of a zero-down mortgage

While buying a home with no money down sounds like a good idea, there are some drawbacks you should be aware of before pursuing this strategy:

  • You’ll start out with little to no equity.
  • If home prices fall and you need to sell, you could be underwater on your mortgage.
  • Larger monthly payments could strain your finances.
  • Not all lenders offer zero-down mortgages.

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    Alternatives to zero-down mortgages

    A zero-down mortgage isn’t the best option for every borrower. Before submitting your mortgage application, consider these alternatives that might be a better fit for you.

    • Conventional mortgages, some of which require a down payment as low as 3%
    • An FHA loan with a 3.5% down payment
    • Down payment assistance programs
    • Banks that offer loan assistance for underserved communities
    • A lease-to-own agreement with a private seller
    • A penalty-free withdrawal from your IRA (up to $10,000 for first-time home purchase)

    Frequently asked questions (FAQ)

    What credit score do I need for a zero-down loan?

    The credit score required for a zero-down loan varies by loan program and lender. The VA and USDA do not have minimum credit score requirements. However, lenders that offer these loans typically require scores of at least 640 and 620, respectively.

    How much of a down payment do I need for a home?

    Most loan programs require a down payment of at least 3%. However, some borrowers qualify for zero-down mortgages that do not require a down payment. Talk with your loan officer or mortgage broker to see which programs you qualify for.

    Are USDA or FHA home loans better for first-time buyers?

    These loan programs help low- to moderate-income borrowers qualify to buy a home. USDA home loans offer up to 100% financing for qualified borrowers who want to live in eligible areas of the country. FHA loans require at least a 3.5% down payment, but they have fewer location restrictions than USDA loans.

    Bottom line

    Getting a zero-down mortgage is a wise choice for many borrowers. It helps them buy a home sooner and start building equity through their monthly payments and home value appreciation. There are numerous no-down-payment mortgage loans to choose from, and down-payment assistance programs can reduce or eliminate your out-of-pocket expenses.

    While these loan programs make homebuying easier, there are risks borrowers should understand before submitting an application. If you don't qualify or aren't comfortable with the loan terms, speak with your loan officer or mortgage broker about other low-down-payment programs available to help you buy your next home.

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page. Specific sources for this article include:
    1. U.S. Department of Agriculture, "Single Family Housing Guaranteed Loan Program." Accessed Dec. 4, 2022.
    2. Bank of America, "Down Payment Grants and Loan Assistance Programs for First-Time Buyers." Accessed Dec. 4, 2022.
    3. U.S. Department of Veterans Affairs, "VA Guaranteed Loan." Accessed Dec. 4, 2022.
    4. CBC Mortgage Agency, “Homebuyer Page - Chenoa Fund.” Accessed Dec. 14, 2022.
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