What "no down payment" actually means

A no down payment mortgage is a loan where the lender finances 100% of the home's purchase price, so you do not deposit your own money upfront. Instead of paying 3%, 5%, or 20% of the price yourself, the bank covers it all. You still pay closing costs (usually 2% to 5% of the loan amount), but those can sometimes be rolled into the loan or covered by the seller.

No down payment mortgages exist, but they are not common and come with real tradeoffs. Lenders charge higher interest rates because they carry more risk. You will also pay mortgage insurance (PMI) for the life of the loan or until you build equity, which adds $100 to $300+ per month to your payment depending on the loan size. The monthly cost is higher, but you can buy a home without saving $20,000 or $30,000 first.

Key Takeaways

  • VA loans and USDA loans offer true zero down payment options if you meet military service or rural property requirements; conventional loans with zero down exist but are rare and expensive.
  • No down payment mortgages charge higher interest rates and require mortgage insurance, raising your monthly payment by several hundred dollars compared to a 20% down loan.
  • You still owe closing costs (typically $3,000 to $10,000), which can be negotiated with the seller or rolled into the loan amount.
  • Lenders require a credit score of 620 or higher for most no down payment loans, stable income verification, and a debt-to-income ratio below 50%.
  • Down payment assistance programs run by nonprofits and state housing agencies can provide grants or forgivable loans to cover a down payment instead of using a zero-down mortgage.

VA loans: zero down if you have military service

A VA loan is backed by the U.S. Department of Veterans Affairs and requires no down payment if you are an active-duty service member, veteran, or surviving spouse of someone who died in service or from a service-related injury. The VA guarantees a portion of the loan to the lender, which removes the lender's risk and eliminates the need for a down payment.

To use a VA loan, you need a Certificate of may be able to access (COE), which you can request through the VA website, by mail, or through your lender. The process takes a few days to a few weeks. VA loans also do not require mortgage insurance, which saves you $100 to $300 per month compared to a conventional zero-down loan. Interest rates on VA loans are typically lower than conventional rates as well.

VA loans do charge a funding fee (usually 1.25% to 3.3% of the loan amount), but this can be rolled into the loan. If you are a surviving spouse or have a service-connected disability rated by the VA, you may be exempt from the funding fee.

USDA loans: zero down for rural and suburban properties

A USDA loan is backed by the U.S. Department of Agriculture and covers properties in rural and some suburban areas. Like VA loans, USDA loans require no down payment. You must meet income limits (which vary by county and family size) and the property must be in an area the USDA designates as may be able to access—usually outside city limits or in towns under 10,000 people.

USDA loans do charge a may provide fee (typically 1% to 2% of the loan amount), which is rolled into the loan. They also require mortgage insurance for the life of the loan, adding $50 to $150 per month to your payment. You can check whether a property is in a USDA-may be able to access area on the USDA Rural Development website before you make an offer.

Income limits are the main barrier. A family of four in many counties cannot earn more than $70,000 to $90,000 per year (the limit varies widely by location). If you are above the limit, a USDA loan is not an option.

Conventional zero-down mortgages and their cost

Conventional loans (not backed by the VA or USDA) can be written with zero down, but lenders rarely offer them and charge significantly higher rates. A conventional zero-down loan typically costs 0.5% to 1% more in interest than a 20% down loan from the same lender. On a $300,000 loan, that difference adds $1,500 to $3,000 per year to your payment.

You will also pay private mortgage insurance (PMI) on any conventional loan where you put down less than 20%. PMI protects the lender if you default; it does not protect you. On a $300,000 loan with zero down, PMI costs roughly $150 to $300 per month. PMI stays on your loan until you have paid down the balance to 80% of the home's original purchase price or until you refinance.

Conventional zero-down loans require a credit score of 620 or higher, a debt-to-income ratio below 50%, and proof of stable income. Some lenders require a score of 640 or 660. Shop multiple lenders because rates and PMI costs vary.

Down payment assistance programs as an alternative

Instead of taking a zero-down mortgage, you can look for down payment assistance programs run by nonprofits, state housing agencies, and local governments. These programs provide grants or forgivable loans to cover part or all of your down payment. A grant does not need to be repaid; a forgivable loan is forgiven after you stay in the home for a set period (often 5 to 10 years).

Assistance programs vary by state and county. Some cover 3% to 5% of the purchase price; others cover up to 15% or 20%. Many require you to take a homebuyer education course (usually online, 4 to 8 hours). Income limits apply, and you must be a first-time homebuyer or meet other criteria depending on the program.

Search for programs through the National Council of State Housing Agencies, your state housing finance agency, or a local nonprofit like NeighborWorks. A mortgage lender can also point you to programs they work with. Down payment assistance often results in a lower interest rate and no mortgage insurance, making it cheaper than a zero-down mortgage even though you are borrowing less.

What lenders look for when you have no down payment

Lenders tighten their standards when you put down zero because they have more money at risk. Expect to provide more documentation than a borrower with a 10% or 20% down payment. You will need recent pay stubs (usually the last 30 days), W-2s or tax returns (typically the last two years), bank statements showing your savings, and a full employment history for the past two years.

Your debt-to-income ratio (total monthly debt payments divided by gross monthly income) must usually be below 43% to 50%, depending on the lender and loan type. If you have credit card debt, car loans, or student loans, those payments count against you. Paying down debt before you apply can improve your chances of approval and lower your interest rate.

A credit score of 620 is the minimum for most zero-down loans, but 640 or higher gets you better rates. If your score is below 620, focus on paying bills on time and reducing credit card balances before you apply.

Closing costs you still owe with zero down

A zero down payment does not mean zero cost at closing. You still owe closing costs, which typically run 2% to 5% of the loan amount. On a $300,000 home, that is $6,000 to $15,000. Closing costs include the appraisal, title search, title insurance, homeowners insurance, property taxes, and lender fees.

You have three options: pay closing costs out of pocket, ask the seller to cover them (called a seller concession), or roll them into the loan amount. Rolling costs into the loan increases your monthly payment but means you do not need cash at closing. Seller concessions are negotiable and depend on the local market; in a buyer's market, sellers are more likely to cover costs.

Some lenders offer "no closing cost" loans, but the cost does not disappear—it is built into a higher interest rate. Over 30 years, you pay more in interest than you would have paid upfront. Compare the total cost, not just the upfront cost.

Frequently Asked Questions

Can I get a zero-down mortgage with a credit score below 620?

Most lenders will not approve a zero-down loan with a score below 620 because the risk is too high. If your score is 580 to 619, focus on paying down credit card balances and making all payments on time for at least three to six months before you apply. Some credit unions and state programs work with lower scores, but rates will be higher.

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

If the appraisal comes in low, the lender will only finance up to the appraised value. With zero down, you would owe the difference in cash at closing or the deal falls apart. A home inspection before you make an offer can catch major issues that might lower the appraisal. In a competitive market, this risk is real.

Can I use a zero-down mortgage to buy an investment property?

VA and USDA loans are for primary residences only. Conventional zero-down loans can sometimes be used for investment properties, but lenders charge even higher rates and require a larger down payment (usually 15% to 25%). Down payment assistance programs are also limited to primary residences.

How long does mortgage insurance stay on a zero-down loan?

On a conventional loan, PMI stays until you have paid the balance down to 80% of the original purchase price or you refinance. On a $300,000 loan, that means paying down to $240,000. Depending on your interest rate and how fast you pay, this can take 10 to 15 years. VA loans do not require mortgage insurance at all.

Is a zero-down mortgage cheaper than saving for a down payment?

Usually no. A zero-down mortgage costs more per month because of higher interest rates and mortgage insurance. If you can save 5% to 10% over one to two years, that down payment saves you money over the life of the loan. But if waiting means paying rent for years longer, a zero-down mortgage may get you into a home sooner, which can make financial sense depending on your local market.