What zero-down mortgages actually are and who offers them

A zero-down mortgage lets you borrow the full purchase price of a home without a down payment. You still pay closing costs, property taxes, and insurance out of pocket—those don't disappear. But the loan itself covers 100% of the home's price.

Three main sources offer these loans: the VA loan program (for military members and veterans), the USDA loan program (for rural properties), and conventional loans with lender overlays (from banks and mortgage companies that choose to offer them). FHA loans require 3.5% down, so they don't count as true zero-down, though they're the lowest conventional option widely available.

Zero-down mortgages are less common than they were before 2008, but they still exist. The catch is that lenders compensate for the higher risk by charging higher interest rates, requiring stronger credit scores, or both. You'll also pay mortgage insurance—either upfront or rolled into your monthly payment—because you have no equity cushion if the home loses value.

Key Takeaways

  • VA loans and USDA loans are the most straightforward zero-down paths; conventional lenders rarely offer true zero-down mortgages anymore.
  • You must still pay closing costs, property taxes, homeowners insurance, and mortgage insurance out of pocket—only the home price itself is financed.
  • Interest rates on zero-down mortgages are typically higher than rates on mortgages with a down payment, sometimes by 0.5% to 1% or more.
  • Your credit score and debt-to-income ratio matter more when you have no down payment, because the lender has no equity buffer.
  • Closing costs typically run 2% to 5% of the home price and must be paid before you close, separate from any down payment.

VA loans: the most accessible zero-down option

If you served on active duty, in the reserves, or in the National Guard, you may be VA-loan may be able to access. The Department of Veterans Affairs doesn't lend money directly—instead, it guarantees loans made by banks and mortgage companies, which means the lender takes less risk and can offer zero down.

To use a VA loan, you need a Certificate of may be able to access, which you request from the VA through eBenefits, by mail, or through your lender. The process takes a few days to a few weeks. Once you have it, any VA-approved lender can process your application. You'll pay a VA funding fee (typically 1.4% to 3.6% of the loan amount for first-time users), which can be rolled into the loan itself rather than paid upfront.

VA loans have no prepayment penalty, no mortgage insurance requirement, and no maximum loan amount set by the VA itself—though individual lenders set their own limits. The interest rate is usually competitive with or better than conventional loans, even though you're putting nothing down. This is the strongest zero-down option available.

USDA loans for rural and suburban properties

The USDA Rural Development loan program finances homes in rural and some suburban areas with zero down. You don't have to work in agriculture—the program is open to any borrower buying a property in an may be able to access area. The USDA website has a map tool where you can check whether a specific address qualifies.

USDA loans require a may provide fee (typically 1% to 2% of the loan amount, often rolled into the loan) and an annual mortgage insurance premium that stays on the loan for the life of the loan, unlike FHA insurance which can be removed after 10 to 11 years. Your debt-to-income ratio usually cannot exceed 41% to 43%, depending on the lender, and your credit score typically needs to be 580 or higher.

The application process is similar to a conventional mortgage: you work with a USDA-approved lender, provide income documentation, and wait for underwriting. The timeline is usually 30 to 45 days. USDA loans move slowly because the USDA itself must review and approve the property before closing, so plan for a longer process than a conventional loan.

Conventional zero-down mortgages and why they're rare

Some banks and credit unions still offer conventional mortgages with zero down, but they're uncommon and come with strict requirements. You typically need a credit score of 700 or higher, a debt-to-income ratio below 43%, and proof of significant savings or assets. The interest rate will be noticeably higher than a loan with 10% or 20% down—often 0.75% to 1.5% higher.

You'll pay private mortgage insurance (PMI), which protects the lender if you default. PMI costs 0.5% to 1.5% of the loan amount annually, added to your monthly payment. Unlike USDA insurance, PMI can be removed once you build 20% equity in the home, which typically takes 5 to 10 years depending on home appreciation and how much extra you pay toward principal.

To find a conventional lender offering zero down, call local banks and credit unions directly—most won't advertise it, and online mortgage marketplaces often filter these loans out. Be prepared to provide extensive financial documentation and to accept a higher rate than borrowers with down payments.

What you must pay even with zero down

Closing costs are the biggest out-of-pocket expense and cannot be financed. They typically range from 2% to 5% of the home price and include appraisal fees, title insurance, attorney fees, recording fees, and lender fees. On a $300,000 home, closing costs could run $6,000 to $15,000. Some lenders offer to pay part of your closing costs in exchange for a higher interest rate, but this is a trade-off, not a free pass.

Property taxes and homeowners insurance are also due at closing or shortly after. Property taxes vary by location but often run 0.5% to 2% of the home price annually, paid in advance at closing. Homeowners insurance is required by any lender and typically costs $800 to $2,000 per year depending on the home and location.

If the home is in a flood zone, you'll need flood insurance, which is separate from homeowners insurance and can cost $400 to $1,500 per year or more. If you're buying in an HOA community, there may be HOA fees and a one-time transfer fee. Budget for all of these before you make an offer.

How credit score and debt affect your chances

With no down payment, lenders scrutinize your credit and income more closely because they have no equity cushion. Most VA lenders require a credit score of 620 or higher, though 640 or above is more common. USDA loans typically require 580 or higher, but scores above 640 get better rates. Conventional zero-down lenders usually want 700 or higher.

Your debt-to-income ratio (DTI)—the percentage of your gross monthly income that goes to debt payments—is critical. Most lenders cap DTI at 43% to 50% depending on the loan type and your credit profile. If you have car loans, student loans, credit card payments, or child support, these all count. A high DTI can disqualify you or force you to a higher interest rate.

Lenders also look at your payment history. Late payments in the past two years, collections accounts, or a recent bankruptcy will either disqualify you or require a much higher rate. If your credit is weak, consider spending 6 to 12 months paying down debt and making on-time payments before applying—the rate improvement will likely outweigh the delay.

The interest rate and insurance cost trade-off

A zero-down mortgage costs more in interest and insurance than a mortgage with a down payment. If you put 20% down, your interest rate might be 6.5%; with zero down, the same lender might charge 7.0% to 7.5%. Over a 30-year loan, that 0.5% to 1% difference adds tens of thousands of dollars in interest.

Mortgage insurance (PMI on conventional loans, funding fees on VA loans, or annual premiums on USDA loans) adds another layer of cost. On a $300,000 conventional loan with PMI at 1% annually, you're paying $3,000 per year until you reach 20% equity. That's $250 per month on top of your principal, interest, taxes, and insurance.

Before committing to zero down, run the numbers against putting down 5% or 10% if you can. A 5% down payment ($15,000 on a $300,000 home) might lower your rate by 0.5% and reduce insurance costs enough to save you $100 to $200 per month. Sometimes saving for a small down payment is worth the wait.

Frequently Asked Questions

Can I use a gift from family for closing costs if I'm doing zero down?

Yes. Most lenders allow gift funds for closing costs, property taxes, insurance, and HOA fees. You'll need a signed gift letter from the donor stating the money is a gift, not a loan, and the donor cannot expect repayment. The gift must come from a family member or close relationship; gifts from employers or strangers raise red flags.

What happens if the home is worth less than what I owe after I buy it?

You're underwater on the loan—you owe more than the home is worth. This is a real risk with zero down because you have no equity buffer. If you need to sell quickly, you'll owe the difference out of pocket. This is why lenders charge higher rates and require mortgage insurance: they're protecting themselves against this scenario.

Can I refinance out of mortgage insurance once I build equity?

With conventional loans and PMI, yes—once you reach 20% equity, you can refinance to remove PMI. With USDA loans, the annual mortgage insurance stays for the life of the loan, so refinancing won't remove it unless you refinance to a different loan type. VA loans have no mortgage insurance at all, so this isn't an issue.

Do I need to have savings left over after closing?

Most lenders want to see 2 to 6 months of mortgage payments in savings after closing, especially for zero-down loans. This shows you can handle the payment if income drops. If you're using every dollar to cover closing costs and have nothing left, some lenders will deny you or require a co-signer.

What if I'm self-employed or have irregular income?

Self-employed borrowers face stricter scrutiny on zero-down loans. Lenders typically want two years of tax returns and may average your income over that period. If your income is declining or highly variable, you'll need to show strong reserves and a solid credit history. Some lenders won't work with self-employed borrowers on zero-down loans at all.