No-down-payment mortgages exist, but they come with real costs you need to understand before you commit

You can buy a home with zero down payment through VA loans (if you are a military member or veteran), USDA loans (if you are buying in a rural area and meet income limits), or conventional loans with private mortgage insurance (PMI). Each route has different requirements, different monthly costs, and different lenders who will actually fund them. The catch is not that they are impossible — it is that lenders shift the risk onto you by charging higher interest rates, requiring mortgage insurance, or both. You will pay more per month than someone who put 20 percent down, and that difference adds up over 30 years.

Key Takeaways

  • VA loans and USDA loans require no down payment and no mortgage insurance, but VA loans are only for military-connected borrowers and USDA loans only for rural properties with specific income limits.
  • Conventional mortgages with no down payment require private mortgage insurance (PMI), which adds $150 to $300+ per month to your payment and stays until you build 20 percent equity.
  • Your credit score, debt-to-income ratio, and employment history matter more when you have no down payment, because the lender has no cushion if the home loses value.
  • The interest rate on a no-down-payment loan is typically 0.5 to 1 percent higher than on a loan with 20 percent down, which costs tens of thousands over the life of the loan.
  • You still need to cover closing costs (typically 2 to 5 percent of the purchase price), which lenders will not roll into the mortgage on a no-down-payment deal.

VA loans: no down payment, no mortgage insurance, military only

If you served on active duty, are a current member of the National Guard or Reserves, or are a surviving spouse of a service member who died in service or from a service-connected disability, you may be able to use a VA loan. The Department of Veterans Affairs guarantees a portion of the loan to the lender, which means the lender takes less risk and does not require a down payment or mortgage insurance.

To use a VA loan, you need a Certificate of may be able to access from the VA, which you can request through the VA website or through your lender. The process takes a few days to a few weeks. You will still need to pass a credit check and prove your income, but the VA does not set a minimum credit score — individual lenders do, and many will work with scores as low as 580. You can use a VA loan to buy a single-family home, a condo (if it is VA-approved), or a multi-unit property if you live in one of the units.

The main cost is the VA funding fee, which is a one-time charge paid at closing. For a first-time user with no down payment, the fee is 2.3 percent of the loan amount. You can roll this into the mortgage, which means you pay interest on it over 30 years. On a $300,000 loan, that is a $6,900 fee, which becomes roughly $13,000 with interest. If you are a surviving spouse or have a service-connected disability rated at 0 percent or higher by the VA, the funding fee is waived.

USDA loans: no down payment for rural properties, income-based

The USDA Rural Development may provide Loan Program finances homes in rural areas and small towns. The property must be in an may be able to access area (you can check on the USDA website by address), and your household income cannot exceed the limit for that county — limits vary widely but often fall between $70,000 and $110,000 for a family of four. You do not need to be a farmer or work in agriculture.

Like VA loans, USDA loans require no down payment and no mortgage insurance. The lender is protected by a USDA may provide, so the risk falls on you if the home loses value. You will need a credit score of at least 580 to 640 (varies by lender), proof of stable income, and a debt-to-income ratio below 41 percent. The application process is similar to a conventional mortgage and takes 30 to 45 days.

USDA loans charge a may provide fee of 1 percent of the loan amount, paid at closing, plus an annual annual fee of 0.35 percent of the remaining loan balance. On a $250,000 loan, the upfront fee is $2,500 (often rolled into the mortgage), and the annual fee is about $875 per year. The annual fee appears on your mortgage statement each month as part of your payment.

Conventional mortgages with private mortgage insurance

If you do not may have access to for VA or USDA loans, a conventional mortgage with private mortgage insurance (PMI) is the most common no-down-payment option. You borrow 100 percent of the purchase price, and the lender requires you to buy PMI to protect themselves if you default. PMI is not homeowners insurance — it protects the lender, not you, and you pay for it.

PMI costs between $150 and $300+ per month on a $300,000 loan, depending on your credit score, the size of your down payment (or lack of one), and the lender. The worse your credit, the higher the PMI. PMI stays on your loan until you have paid down the principal to 80 percent of the original purchase price or until you refinance. On a 30-year mortgage with no down payment, that can take 10 to 15 years. You can request removal once you hit 20 percent equity, but the lender does not have to agree until you reach 22 percent.

Conventional lenders are stricter about credit and income when there is no down payment. Most require a credit score of at least 620, though 640 or higher gets you better rates. Your debt-to-income ratio (all monthly debt payments divided by gross monthly income) usually cannot exceed 43 percent, and some lenders cap it at 40 percent. You will need to show two months of bank statements, recent pay stubs, and typically two years of tax returns.

How interest rates and total cost change with no down payment

A borrower with a 20 percent down payment and a 740 credit score might get a 30-year mortgage at 6.5 percent. The same borrower with zero down and PMI might see 7.0 to 7.25 percent. That 0.5 to 0.75 percent difference does not sound like much, but it compounds over 30 years.

On a $300,000 home: a 20 percent down payment ($60,000) at 6.5 percent costs about $1,520 per month in principal and interest. Zero down at 7.0 percent plus $250 PMI costs about $1,990 per month. Over 30 years, that is an extra $470 per month, or roughly $169,000 in additional cost. That is before considering the interest you pay on the PMI itself if it is rolled into the loan.

The math improves if you can refinance once you build equity or if your credit score improves. But you need to stay in the home long enough for the refinance to pay for itself — typically three to five years depending on rates and closing costs.

Closing costs you still have to pay upfront

Even with no down payment, you have to pay closing costs at the time you sign the mortgage. These typically run 2 to 5 percent of the purchase price and include the lender's origination fee, appraisal, title search, title insurance, homeowners insurance (required by the lender), property taxes, and recording fees. On a $300,000 home, closing costs can be $6,000 to $15,000.

Some lenders will roll closing costs into the mortgage, which means you do not pay them upfront but you pay interest on them for 30 years. Others require you to pay them at closing. A few will offer a lender credit that covers part of the costs in exchange for a slightly higher interest rate. Ask your lender what is negotiable before you commit.

You also need to budget for a home inspection (typically $300 to $500) and any repairs the inspection uncovers. Lenders will not finance a home that fails inspection, so you either negotiate repairs with the seller or walk away.

Building credit and income before you apply

If your credit score is below 620 or your debt-to-income ratio is above 43 percent, you will not be approved for a conventional no-down-payment mortgage. Spending three to six months paying down credit card balances and avoiding new debt can raise your score by 20 to 50 points. Paying off a car loan or student loan entirely removes a monthly payment and improves your ratio.

Lenders look at your last two years of income. If you changed jobs recently, you may need to wait 90 days before applying. If you are self-employed, you will need two years of tax returns and possibly a profit-and-loss statement. If you received a bonus or commission, the lender will average it over two years rather than counting the full amount.

Some lenders will count co-signer income if a family member agrees to be responsible for the loan if you default. A co-signer does not have to live in the home, but their credit and income are evaluated the same way as yours, and the loan appears on their credit report.

Frequently Asked Questions

Can I use a gift from family to cover closing costs?

Yes, but the lender needs proof it is a gift, not a loan. You will need a signed letter from the family member stating the amount, that it is a gift with no repayment expected, and their relationship to you. The lender will verify the funds came from their account and that you received them. If the gift is large relative to your income, the lender may ask more questions to confirm you are not borrowing money elsewhere.

What happens if the home appraises for less than the purchase price?

The lender will only finance up to the appraised value. If you agreed to pay $300,000 but it appraises at $280,000, you either need to come up with the $20,000 difference in cash or renegotiate the price with the seller. With no down payment, you have no cushion, so this is a real risk. A home inspection before you make an offer can catch major issues that might affect value.

Can I remove PMI early if I pay extra toward principal?

Yes, but only if you reach 20 percent equity. Paying extra toward principal speeds this up, but you still have to request removal in writing and the lender has to agree. Some lenders will remove it automatically once you hit 22 percent equity. Check your loan documents or call your lender to find out their policy.

What if I have no credit history or bad credit?

No credit history is easier to work with than bad credit. Lenders can use alternative credit (rent payments, utility bills, phone bills) to build a profile. Bad credit (late payments, collections, bankruptcy) requires waiting — typically two years after a late payment, three to four years after a foreclosure, and seven years after a bankruptcy before conventional lenders will consider you. FHA loans (which require a 3.5 percent down payment) are more flexible with credit history.

Do I need to be a first-time homebuyer to get a no-down-payment loan?

No. VA loans and USDA loans do not require first-time buyer status. Conventional mortgages with PMI are available to anyone who meets the credit and income requirements, regardless of whether you have owned a home before. Some lenders offer slightly better terms to first-time buyers, but it is not a requirement.