Options For Zero-Down Mortgages
There are a couple options for home buyers who want a zero-down mortgage: a USDA or VA loan.
Department Of Veterans Affairs Loans
The Department of Veteran Affairs backs VA loans and is for active-duty service members and veterans, members of the National Guard and qualifying surviving spouses of deceased veterans. VA loans are popular because loan requirements are less stringent compared to conventional loans, and require no money down. Borrowers also don’t need to pay mortgage insurance. Depending on the lender, there is a minimum credit score requirement. For our friends at Rocket Mortgage®, the minimum score is 580 for VA loans.
Some loan requirements include:
● Obtaining a certificate of eligibility (COE) through the VA
● Having a maximum debt-to-income ratio (DTI) of 41%
● Sale price of home needs to be at or below its appraised value
● The home must be your primary residence
● Pay a one-time VA funding fee, either 2.15% of your home.
U.S. Department Of Agriculture Loans
USDA loans are backed by the United States Department of Agriculture. These loans are designed to help low- and moderate-income home buyers in rural areas afford to purchase a home.
Aside from not having a down payment requirement, USDA loans tend to come with lower fees compared to other mortgage types. Other benefits may include below-market interest rates and a low minimum credit score requirement. You will need to work with a lender that offers these types of loans, as not all do.
The two programs USDA offers that don't have a down payment requirement are the Section 502 direct Loan Program and the Section 502 Guaranteed Loan Program. You'll need to meet the following requirements for either loan:
● Household income can’t be more than 115% of the median income for the county which you plan on purchasing the home
● Debt-to-income ratio needs to be less than 45%
● Credit score needs to be a least 640
● Need to occupy home as primary residence
● The home must be in a qualifying rural area
Borrowers will need to pay a loan guarantee fee. While legally this can be up to 3.5% of your loan's principal amount, the fee is periodically reevaluated by the USDA. The current upfront guarantee fee is 1% of the loan amount. There is also an annual fee up to 0.5% of your annual unpaid principal balance for the life of your loan. Again, this is at the discretion of the USDA. The current annual fee is 0.35%, split into monthly increments.
Low-Down-Payment Mortgages And Credit Programs
Zero-down payment mortgages tend to be more restrictive than other types of home loans. You may have a better chance qualifying for low-down-payment mortgages or credit programs instead.
ONE+ By Rocket Mortgage
This home loan only requires that you put 1% down and Rocket Mortgage will grant up to an additional 2% if you qualify.1 You will need to meet criteria like income eligibility requirements, purchase a single-family residence as your primary home, and have a minimum score of 620.
Federal Housing Administration Loan
Backed by the Federal Housing Association, FHA loans offer loans with as little as a 3.5% down payment. Like VA and USDA loans, FHA loans aim to help low- to moderate-income households afford homeownership. It's also a great choice for qualifying first-time home buyers who want a faster path to owning a home. In many cases those with lower credit scores may also qualify for a loan.
Although there are less stringent qualifying requirements, FHA loans require that you pay a mortgage insurance premium (MIP) throughout the life of the loan if you make a down payment of less than 10%. Other requirements include the home needs to be your primary residence, you must move in within 60 days of closing, and the home needs to meet certain livability standards.
Freddie Mac’s Home Possible®Loan
The Home Possible® program allows home buyers to secure lower loans with a minimum of 3% down, and at competitive rates. In general, loan requirements (such as minimum credit and income criteria) are less stringent compared to conventional mortgages. However, you need to purchase an eligible property type under this program.
To qualify for this loan option, you have to make 80% or less of the area median income where you're looking to buy. If you make 50% or less of the median income in the area, you qualify for a $2,500 grant under this program.
Fannie Mae’s HomeReady® Loan
Like the Home Possible® program, Fannie Mae’s HomeReady®loans also have a 3% minimum down payment requirement and competitive interest rates. Other benefits include lower PMI, though you’ll need to be sure you meet other eligibility requirements like the minimum score and income threshold. The qualifications for income and grants match those for Home Possible®.
Freddie Mac’s BorrowSmartSM Access
The BorrowSmartSM Access program offers assistance to help you meet the down payment requirements for a mortgage. You can use the funds to cover part of your closing costs as well. Requirements include needing to be a first-time home buyer, being under a certain income threshold and completing pre-purchase counseling.
Conventional Loan
Yes, you can work with your lender to lower your down payment requirements for a conventional loan. You may also be able to score a competitive interest rate depending on your credit and financial profile. Keep in mind that you will need to pay PMI if your down payment is less than 20%.
Purchase Plus
Purchase Plus from Rocket Mortgage is a credit program offering up to $7,000 in credits toward mortgage costs. Borrowers need to be first-time home buyers and must live in certain metropolitan areas to qualify.
