Homebuyers

How to Buy a Home with 0% Down Using an FHA Loan

For many would-be homebuyers, saving for a hefty down payment can be a challenge with high rents and daily costs on the rise.

A Federal Housing Authority (FHA) loan, paired with a second mortgage or down payment assistance program, could be the key to buying a home with no money down.

FHA loans traditionally require a minimum 3.5% down payment with a credit score of 580 or higher (or 10% down for lower scores). But it may be possible to walk away from the closing table without dipping too far into your savings.

Keep in mind that even with creative financing, an FHA loan with no money down doesn’t mean zero costs. Buyers still face closing expenses, mortgage insurance that raises monthly payments, and slower home equity growth. And because not everyone will qualify, it’s important to weigh the pros and cons before moving forward.

For some first-time homebuyers, however, an FHA loan paired with a second mortgage or down payment assistance can be the difference between staying stuck as a renter and stepping into homeownership.

“Over the past decade, I’ve seen how pairing FHA programs with local assistance funds or second mortgages can open doors for families who otherwise thought homeownership was out of reach,” said Iowa-based real estate investor Jacob Naig, owner of We Buy Houses in Des Moines.

How to qualify for zero money down with an FHA loan

While FHA loans technically require a down payment, many first-time buyers can find ways to bring their out-of-pocket costs down to nothing—or close to it.

By pairing an FHA loan with down payment assistance programs, gift funds, or even a second mortgage, buyers may be able to cover the required 3.5% down payment.

Most need a credit score of at least 580, though some may qualify with lower scores with stricter loan terms.

“I once helped a young teacher in Des Moines layer a state [down] assistance program on top of a small family gift and seller concessions,” said Naig. “She closed for under $500 in total cash spent, a figure that felt like a fairy tale to her after years as a renter.”

Downsides to getting an FHA loan with no money down

The chance to buy a home with little or no money down is appealing, but FHA loans do come with trade-offs.

Because these loans start with little or no equity, which is how much of the home you own (versus your lender), it takes longer for homeowners to build real financial value in the property.

Buyers must also budget for mortgage insurance premiums, which add to monthly costs. And they will still need to cover closing costs out of pocket.

Additionally, in a competitive market, FHA buyers may sometimes lose out to all-cash offers or offers with high down payments.

“Though FHA loans with a second mortgage can open up the door to some buyers, the financial trade-offs have to be considered,” said Doug Van Soest, a residential appraiser and owner of SoCal Home Buyers based in Santa Monica, Calif.

How mortgage insurance works on an FHA loan

One of the biggest ongoing costs first-time homebuyers need to be aware of with an FHA loan is mortgage insurance premiums.

Buyers pay both an upfront fee of 1.75% of the loan amount, usually rolled into the loan, and a monthly premium based on the size and length of the loan. For a $200,000 mortgage, that could mean an extra $100 to $140 a month.

Unlike private mortgage insurance on Conventional loans, FHA’s mortgage insurance doesn’t disappear once you’ve built equity if you put down less than 10% when you purchased the property. It’s there for the life of the loan unless you refinance into a Conventional loan.

However, you can often get rid of mortgage insurance after 11 years if the down payment was 10% or more.

“Over the long term, this will affect affordability and may be the difference between being able to afford and not being able to afford something,” said Naig.

Do FHA loans put buyers at a disadvantage?

In a competitive market, speed and perception can matter just as much as financing.

FHA loans often face more scrutiny during the appraisal process, since properties must meet certain safety and livability standards. Adding in additional loans or down payment assistance may also slow the timeline down.

Longer waits could make your offer less competitive.

While it’s true that buyers with other types of loans may sometimes have the edge, proactive FHA buyers may still be able to close quickly when working with the right lender.

Layering programs to lower your closing costs

For many buyers, closing the gap on the upfront costs of purchasing a home takes a little creativity.

Down payment assistance programs, second mortgages, and family gift funds can often be layered on top of FHA financing to make buying more affordable.

In some cases, seller concessions also help cover closing costs. With the right mix, it’s possible for buyers to spend much less than they anticipated.

“One couple I represented bought a modest starter home just outside Des Moines with a combination of FHA financing and a community development loan,” said Naig. The loan is a kind of down payment assistance. “They walked away from the closing table with keys in hand and without spending a dime out of pocket.”

The trade-offs of a no-money-down FHA loan

Buying with little or no money down can be a lifeline, but it comes with long-term trade-offs.

Since these loans start with no equity in your home, it takes longer for homeowners to build wealth in their property. Add in the ongoing mortgage insurance costs, and buyers may find themselves paying more over time compared with Conventional loans, the most popular type of home loan.  

And when it comes time to sell, refinance, or move, it may take years before there’s enough equity to profit from a sale. For buyers who may want to move again in just a few years, these factors can limit flexibility.

Still, for many first-time buyers, the chance to finally break free from renting makes the balance of costs and benefits worthwhile.