Considering buying a home for the first time often has buyers wondering how much they’ll need to save up for the down payment. However, having no down payment for first-time homebuyers is an option, if borrowers choose specific types of loans. Otherwise, it may be worth considering low down payment loans instead.
Many first-time homebuyers are under the impression that they must save up 20% of the total home cost for a down payment. This is only true if you are planning on taking out a conventional loan and wish to avoid private mortgage insurance fees. In fact, according to the National Association of Realtors, the average down payment for a home in 2023 was 8%.
What is a No Down Payment Mortgage?
A no down payment mortgage means that you don’t put any money down upfront when you take out a home loan. You’ll essentially be taking the home sale price and taking out a loan for the same amount.
Benefits for First-Time Homebuyers
One of the biggest hurdles for buying a home is trying to save up a chunk of money to use for a down payment on top of your regular daily expenses. If you can secure a mortgage without a down payment, you could begin the home buying process sooner than you think.
Types of No Down Payment Mortgages Available
The two most popular mortgage types available with no down payment requirement are government-backed loan programs with specific requirements. These no down home loans are the VA home loan and the USDA home loan. Depending on state funding and programming near you, there may also be down payment assistance and grant programs that can cover some or all of your down payment for all types of loans.
VA Loans
If your loan amount is higher than $144,000 and you’re a qualified borrower, you can purchase a home without a down payment with a VA loan. No down payment required is just one benefit of a VA loan. They usually have lower interest rates than conventional products, which help lower monthly payment amounts and the overall cost of interest paid over the life of the loan. Additionally, no monthly private mortgage insurance (PMI) is required, helping you save up to hundreds of dollars every month, helping keep your mortgage costs low. Plus, more leniency is given with VA loans around credit scores and financial history, and closing costs are typically reduced.
- Keep in mind, there are specific qualifications for VA loans. Borrowers must:
- Meet minimum active-duty service requirements or be the surviving spouse of a veteran or military member
- Find a home that meets minimum property requirements with water, sewer, heat and cooling
- Meet lender’s credit and debt-to-income ratio requirements
USDA Loans
USDA loans are another no down payment option for first-time homebuyers. This loan program, which is backed by the government, is designed specifically to help middle to lower-income families in rural areas purchase a home. In addition to no down payment requirement, USDA loans also allow the borrower to purchase a home with possibly lower interest rates, lower PMI costs, and USDA loans allow sellers to contribute to closing costs. Additionally, USDA loans don’t require as high of credit, so borrowers with less-than-perfect credit can qualify for the loans more easily.
USDA loans can have a fixed or adjustable rate, and have a few requirements that borrowers must adhere to in order to be eligible. Requirements vary state by state, so be sure to check with your local lender to find out which properties are eligible, as well as what the lender’s income, credit, DTI, and financial history requirements may be.
If you’re ready to buy your first home with no down payment, learn more about your options and start your journey with PacRes Mortgage today. We’ll be happy to help you explore your eligibility and determine the best loan product for you.
