What zero-down mortgages actually are

A zero-down mortgage is a loan where the lender finances 100% of the home's purchase price, so you do not need to save a down payment before buying. Instead of paying 3% to 20% of the price upfront, you borrow that amount as part of your total loan. The tradeoff is that your monthly payment will be higher, your interest rate may be higher, and you will pay mortgage insurance — a monthly fee that protects the lender if you stop paying.

These mortgages exist because some lenders believe borrowers with steady income and good credit history are worth the extra risk. They are not common, and they are not available from every lender, but they do exist and people do use them.

Key Takeaways

  • VA loans (for military members and veterans) and USDA loans (for rural areas) are the most straightforward zero-down options because they are backed by the government.
  • Conventional zero-down mortgages require a higher credit score (usually 700 or above) and mortgage insurance that adds $100 to $300+ to your monthly payment.
  • Your debt-to-income ratio — the percentage of your monthly income that goes to debt payments — must be low enough that lenders believe you can afford the full loan amount.
  • Closing costs (the fees to finalize the loan) still come out of your pocket unless the seller agrees to pay them, so you need some cash saved even with zero down.
  • The monthly payment on a zero-down mortgage is often higher than on a mortgage with a down payment, because you are borrowing more and paying insurance.

VA loans: zero down if you served

If you are a current or former member of the military, a VA loan is usually your simplest path to a zero-down mortgage. The U.S. Department of Veterans Affairs guarantees part of the loan to the lender, which means the lender takes less risk and will lend you the full purchase price without a down payment.

To use a VA loan, you need a Certificate of may be able to access from the VA, which you can request online through VA.gov or through your lender. The process takes a few days to a few weeks. You will also need a credit score of around 620 or higher, though many lenders prefer 640 or above. There is no mortgage insurance requirement on VA loans, which saves you money each month compared to other zero-down options.

VA loans do have a funding fee — a one-time charge that the VA collects to keep the program running. This fee is usually 1% to 3.6% of the loan amount and is added to your total loan, so you do not pay it upfront. If you are receiving disability compensation from the VA, you may be exempt from this fee.

USDA loans: zero down in rural areas

If you are buying a home in a rural area, a USDA loan from the U.S. Department of Agriculture may let you borrow 100% of the purchase price. These loans are designed to help people in areas where traditional lending is harder to find.

To use a USDA loan, the property must be in a USDA-may be able to access area. You can check whether a specific address qualifies on the USDA's website. You also need a credit score of around 640 or higher and a debt-to-income ratio below 41% (meaning your monthly debt payments cannot exceed 41% of your gross monthly income). Like VA loans, USDA loans do not require a down payment, but they do charge a may provide fee — usually 1% to 2% of the loan amount — which is added to your loan.

USDA loans also require mortgage insurance, which costs about 0.35% of the loan amount per year, split into a one-time upfront payment and a monthly payment. This is less expensive than mortgage insurance on conventional loans.

Conventional zero-down mortgages and mortgage insurance

Some conventional lenders (banks and mortgage companies not backed by the government) will lend you 100% of the purchase price if you meet their requirements. These loans are harder to find than VA or USDA loans, and the terms are stricter.

Most conventional lenders offering zero-down mortgages require a credit score of 700 or higher, a debt-to-income ratio of 43% or lower, and proof of stable income for at least two years. You will also pay mortgage insurance — a monthly fee that protects the lender if you default. On a zero-down conventional loan, mortgage insurance typically costs 0.5% to 1.5% of your loan amount per year, which means $100 to $300+ per month on a $250,000 loan.

Unlike VA and USDA loans, conventional mortgage insurance does not go away automatically. You can request to have it removed once you have paid down the loan to 80% of the home's original value, but this takes years. Some lenders allow you to remove it sooner if your home has increased in value and you pay for a new appraisal.

Closing costs you still need to cover

Even with a zero-down mortgage, you will owe closing costs — the fees charged by the lender, title company, and other parties to finalize the loan. These typically range from 2% to 5% of the loan amount, or $5,000 to $12,500 on a $250,000 home.

You have three options: pay closing costs out of pocket before closing, ask the seller to pay them as part of the sale agreement, or roll them into your loan (which increases your monthly payment). Many buyers negotiate with the seller to cover closing costs, especially in a buyer's market where homes are sitting longer.

Some lenders offer no-closing-cost mortgages, where the lender covers the costs in exchange for a slightly higher interest rate. This can make sense if you do not have cash saved, but it means you pay more over the life of the loan.

Your debt-to-income ratio and income verification

Lenders use your debt-to-income ratio to decide how much they will lend you. This is the percentage of your gross monthly income that goes toward debt payments — credit cards, car loans, student loans, and the new mortgage payment all count.

For a zero-down mortgage, most lenders want your debt-to-income ratio to be 43% or lower. If you earn $5,000 per month, your total monthly debt payments (including the new mortgage) cannot exceed $2,150. This is stricter than for mortgages with a down payment, because the lender is taking on more risk.

You will need to show proof of income: recent pay stubs, W-2 forms from the past two years, and possibly tax returns. If you are self-employed, you will need two years of tax returns and possibly a profit-and-loss statement. If you have changed jobs recently, some lenders want a letter from your new employer confirming your position and salary.

Credit score requirements and what lenders look for

Your credit score is a number between 300 and 850 that reflects your history of borrowing and repaying money. For a zero-down mortgage, most lenders want a score of 620 to 700 or higher, depending on the loan type. VA loans are often the most flexible, while conventional loans are the strictest.

Lenders also look at what caused any past problems. A late payment from five years ago is less concerning than one from last year. A bankruptcy or foreclosure will disqualify you from most zero-down loans for a set period — usually three to seven years, depending on the lender and loan type.

If your credit score is below 620, you will not may have access to for most zero-down mortgages. Your options are to wait while you build your credit (by paying bills on time and paying down debt), or to save for a down payment, which makes you a less risky borrower and opens up more loan options.

Frequently Asked Questions

Can I get a zero-down mortgage if I have bad credit?

Most zero-down mortgages require a credit score of 620 or higher. If your score is lower, you will need to wait and build your credit before explore, or save for a down payment. Building credit takes time — typically three to six months of on-time payments to see a meaningful improvement.

What happens if I cannot afford the closing costs?

You can ask the seller to pay closing costs as part of the purchase agreement, or you can ask the lender about a no-closing-cost mortgage where the costs are rolled into your loan. Both options are common and worth discussing with your lender before you make an offer.

Is the monthly payment really that much higher without a down payment?

Yes. Without a down payment, you are borrowing more money, and you are paying mortgage insurance on top of that. On a $250,000 home, the difference between a 20% down payment and zero down can be $200 to $400 per month or more, depending on your interest rate and credit score.

Can I remove mortgage insurance later?

On conventional loans, you can request to remove mortgage insurance once you have paid the loan down to 80% of the home's original value, which usually takes 8 to 10 years. VA and USDA loans do not have removable mortgage insurance, but their insurance costs are lower to begin with.

What if I do not may have access to for VA or USDA loans?

You can look for a conventional zero-down lender, though these are less common and have stricter requirements. If you cannot find one or do not meet their requirements, saving even a small down payment (3% to 5%) opens up many more loan options and usually lowers your monthly payment.