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How to Buy Your First Home Without a Down Payment

Happy couple in first home

Help for First-Time Homebuyers

First-time homebuyers can often feel overwhelmed when deciding to buy their first home. Even if business is good, they may ask themselves how they’ll be able to save up enough money for that first, crucial down payment plus the continued financial requirements that come with being invested in a home. However, buying a home doesn’t have to be this stressful thanks to the few options that first-time buyers can utilize when looking to purchase a home. 

Below, find out how to purchase a house with no down payment as a first-time homebuyer and learn some ways to receive a down payment beyond saving up enough cash.

Can I Buy a House with No Down Payment as a First-Time Homebuyer? 

The short answer is yes, you can buy a house with no down payment as a first-time homebuyer. On average, first-time homebuyers put down around 7%. This low percentage may be surprising to some, and even more astonishing is that this number is lower than the original 10% down payment needed as far back as 1989.

If, however, you’d prefer to save the 7% for things such as home renovation, options exist on federal, state, and non-profit levels to assist first-time homebuyers in their homeowning endeavors. Make sure to talk to a lender about what options and programs are available that suit your specific circumstances.

How To Buy a House with No Down Payment as a First-Time Homebuyer

While some of the below options to help first-time homebuyers finance a house offer 0% down, others offer a lower percent down payment percentage other than the typical 7% mentioned above. The emergence of loans offered to help more people afford homes has been particularly beneficial to first-time homebuyers.

Saving money on your down payment can help make your monthly payments more manageable and allow you to reserve more money for other home expenses like mortgage insurance. Look at all these options to help with the down payment below.

Homebuyer Down Payment Assistance

An alternative to a low-money down loan is a Down Payment Assistance Loan (DPA) that lets potential homeowners buy a house without needing immediate cash. The usual requirements for this type of aid vary, although a 3.5% loan covering the first down payment or a 5% second loan covering the first down payment plus the closing costs is usually to be expected.

Loan forgiveness timeframes also vary depending on which second loan type homebuyers select, with a 36-month timeframe for the 3.5% loan, and 10 years of consecutive payments for the 5% loan.

FHA Loans

Like the above DPA loan, Federal Housing Administration (FHA) loans allow buyers to put down as little as 3.5% and are primarily for those with low to moderate incomes. Unlike the USDA and VA loans mentioned below, FHA loans have fewer requirements, making them a great option for first-time buyers with low credit. Loans governed by federal agencies do have unique requirements that are different from those backed by Fannie Mae and Freddie Mac.

While the usual credit score requirement to qualify for an FHA loan is 580, some lenders will allow those with a credit score as low as 500 to successfully apply (although applicants will need to put 10% down, more than the standard 7%).

The requirements to qualify for an FHA loan are:

  • A 3.5% down payment
  • A 580-credit score (in most cases)
  • A debt-to-income ratio of 45% (again in most cases)
  • A two-year employment history to prove to lenders you'll be able to repay what you've borrowed
  • The purchased home must be the primary residence and meet the basic livability standards
  • The loan amount must be within the local FHA loan limits

Each lender has their own unique set of loan terms and requirements for qualification, so make sure to check with them to find out what you can qualify for.

USDA Loans with No Money Down

The USDA loans are governed by the U.S. Department of Agriculture and it is the first loan option that offers a 100% financing mortgage for homebuyers. This means that they have no down payment requirements that buyers will need to meet before qualifying, making this choice attractive to those looking to buy a house with no down payment as a first-time homebuyer. They are limited to rural areas and have other requirements as well.

Here are some requirements that will need to be met before qualifying for this choice:

  • A credit score minimum of 580
  • Proven creditworthiness
  • A maintainable and dependable income
  • Possessing a household income below 115% of the area’s median income
  • The newly purchased home must be the primary residence in a rural area
  • The applicant must be a legal and permanent resident of the United States

VA Home Loans with No Down Payment

Another zero-down mortgage exclusively available to U.S. military members, veterans, and surviving spouses, VA home loans require no down payment to qualify. These loans are backed by the U.S. Department of Veterans Affairs and offer low rates and easy-to-meet requirements for borrowers with a certificate of eligibility (COE), allowing those who have invested their time with the military to buy a house with no down payment relatively hassle-free.

Like USDA loans, VA loans have requirements that must be met to qualify (simply qualifying for one of the below if enough):

  • You must have served 90 or more days of active wartime service
  • You must have served at least 180 days of active peacetime service
  • You must have served six or more years in the National Guard or Reserves
  • You are the spouse of a service member who has since died in the line of duty or due to a service-related disability

How to Get a Down Payment

It is important to remember that there is no guarantee borrowers will always qualify for loans like these. While it is possible for first-time buyers to purchase a home with no money down, the occasionally strict requirements may prevent these buyers from successfully qualifying, but the low-down loans that are also available may keep the dream of homeownership alive for the hopeful home purchaser.

There are many considerations to be made in the homebuying process, but there is also plenty of help and advice available. Make sure to talk to your mortgage lender about your eligibility and what programs will fit your needs.

For more information contact New American Funding. Our loan officers are happy to discuss your needs and help you through the application process.

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