FHA Zero Down Loans: The Complete Guide for First Time Homebuyers in 2023

Whether youre a first-time homebuyer, moving to a new home, or want to refinance your existing conventional or FHA mortgage, the FHA loan program will let you purchase a home with a low down payment and flexible guidelines.580 Credit Score- and only -3.5% Down RELATED ARTICLES

FHA loan limits were established to define how much you can borrow for a HUD-backed mortgage. Each state has different limits, so be sure to look up your state to understand what is available for your FHA home loan.

For , the FHA floor was set at $498,257 for single-family home loans. This minimum lending amount covers most U.S. counties. The FHA ceiling represents the maximum loan amount and is illustrated in the table below.

Also for 2024, the FHA ceiling was set at $1,149,825 for single-family home loans. This represents the highest amount that a borrower can get through the FHA loan program. It applies to high cost areas in the United States and is illustrated in the table below.

Paying the upfront costs of buying a new home can be challenging. To help overcome this hurdle, many local and state agencies offer down payment assistance in the form of grants or second mortgages.

Buying your first home is an exciting milestone. But saving up for a down payment can feel impossible when you’re just starting out. That’s where FHA zero down loans come in.

With an FHA zero down loan, you can get into your dream home without any money down. Keep reading to learn everything you need to know to get approved and buy a house with zero down using an FHA mortgage.

What is an FHA Zero Down Loan?

An FHA zero down loan, also called an FHA 203(b) loan, allows you to buy a primary residence without making a down payment It is insured by the Federal Housing Administration (FHA), which is part of the US. Department of Housing and Urban Development (HUD).

Here are some key features

No down payment required – The big benefit is not having to save up cash for a down payment.
Low credit score requirements – You can qualify with a credit score as low as 500 using non-traditional credit. The minimum is usually 580.
Low monthly mortgage insurance – FHA loans require mortgage insurance no matter your down payment amount But FHA MI rates are low
Fixed interest rate – FHA loans come with a fixed rate. So your monthly payments will remain steady for the life of the loan.
30-year loan term – FHA zero down loans come with a 30-year term. This results in lower monthly payments than shorter terms.
Less strict debt-to-income ratio – FHA allows a DTI up to 55%, which is higher than conventional loans. This helps buyers who carry some debt.
Wide home availability – You can use FHA zero down financing to buy almost any single-family residence, townhouse or condo. VA and USDA loans have more location restrictions.

As you can see, FHA zero down loans offer several perks for first-time buyers and those with limited savings. Keep reading to learn more about requirements and the step-by-step process.

FHA Zero Down Loan Requirements

While FHA zero down loans are accessible for many buyers, you still have to meet certain requirements. Here are the key eligibility criteria:

Minimum credit score of 500 – As mentioned above, you can qualify for FHA financing with bad credit and scores starting at 500 using non-traditional credit guidelines. The minimum is 580 with traditional credit.
Debt-to-income ratio below 55% – Your total monthly debt payments, including the new mortgage, should not exceed 55% of your gross monthly income.
Stable income – You’ll need at least two years of stable income history. FHA defines “stable” as no gaps in employment greater than 30 days over the last two years.
Homebuying education – All FHA buyers must complete a short online homebuyer education course. Many are free.
Owner-occupancy – FHA zero down loans are only for primary residences. You cannot use this financing to buy a vacation home or investment property.
Single-unit home – The property must be a single-family house, condo or townhouse. No multi-unit properties allowed.

As long as you meet these requirements, you can buy a home with zero down using an FHA loan. Now let’s walk through the step-by-step process.

How to Get an FHA Zero Down Loan

Follow these six steps to buy a house with zero down using an FHA mortgage:

Step 1. Check your credit

Before applying, check your credit scores and reports. This gives you time to correct any errors and improve your score before submitting your official application. Lenders will check your credit when you apply.

Step 2. Get pre-approved

FHA pre-approval involves submitting financial details to verify you meet the above requirements. Get pre-approved before making an offer, so you can shop with confidence and make competitive offers quickly.

Step 3. Make an offer

Once pre-approved, you can start shopping for homes. When you’re ready to make an offer, inform the seller you are using FHA financing. Your real estate agent can help you submit a strong offer.

Step 4. Complete the loan application

After your offer is accepted, your lender will have you fill out a full loan application with income, employment, asset and debt details. You’ll also need to pay for the appraisal upfront.

Step 5. Get home appraised

The property must be appraised to verify it is worth at least what you are paying. FHA loans have minimum property standards regarding safety and livability that your home must meet.

Step 6. Close on time

Finally, submit any remaining documentation your lender requests. Then show up on time for your closing to get the keys to your new home!

And remember, you can do all of this with zero down using an FHA loan.

Where to Get an FHA Zero Down Loan

Many different lenders offer FHA zero down loans. Here are some places to consider shopping for the best rates and fees:

Online lenders – Companies like Quicken Loans and LoanDepot offer online rate quotes. This makes it easy to compare FHA loan options.
Credit unions – Local credit unions are a go-to source for first-time buyer programs. And they offer personalized service.
Mortgage brokers – Brokers have access to multiple lenders and help you find the most competitive FHA zero down loan.
Banks and mortgage lenders – Shop national lenders like Wells Fargo and Chase as well as smaller local mortgage companies.
Real estate agents – Ask your buyer’s agent for recommendations on FHA zero down lenders they prefer to work with.

No matter where you apply, shop with multiple lenders to make sure you get the best rate deal. Each lender will have slightly different rates and fees.

FHA Zero Down Loan Rates & Costs

While FHA zero down loans make buying a home affordable, it’s still important to consider long-term costs. Here are the rates and fees to expect with an FHA zero down mortgage:

Interest rates – FHA zero down loans will have a fixed interest rate. As of this writing, rates are hovering around 7% APR for a 30-year loan. Your actual rate will depend on your finances and credit.

Upfront mortgage insurance – FHA loans require 1.75% of the loan amount in upfront mortgage insurance. On a $200,000 loan that’s around $3,500. This can be rolled into the total loan amount.

Monthly mortgage insurance – You’ll also pay an annual 0.45% to 1.05% of the loan amount. With excellent credit on a $200,000 loan, it’s about $75 per month.

Closing costs – Expect to pay around 3% to 5% of the loan amount in closing costs and fees. You can work with the seller to pay some closing costs.

Ongoing costs – Finally, factor in taxes, homeowners insurance, utilities, maintenance and association fees if applicable.

While rates and fees add up, they should fit comfortably within your monthly budget thanks to the long loan term and low monthly payments. Now let’s look at some pros and cons of FHA zero down loans.

Pros and Cons of FHA Zero Down Loans

FHA zero down loans make buying a home with no money down possible. But are they the right choice for you? Here are some key advantages and disadvantages:

Pros

Zero down payment required
Low monthly mortgage insurance
Minimum credit score of 500
Low fixed interest rates
30-year loan term
Finance closing costs

Cons

Upfront and monthly MI costs
Mortgage rates slightly higher than conventional loans
Strict debt-to-income ratio limit
Limited mostly to primary residences
Home must meet minimum property standards

As you weigh the pros and cons, think about your savings, monthly income, credit score, and plans for the home. An FHA zero down loan gives borrowers with low savings and credit challenges a path to homeownership. But make sure it aligns with your goals.

Alternatives to FHA Zero Down Loans

FHA mortgages are not the only option for buying a home with zero down. Here are a few alternatives if you don’t qualify for an FHA loan:

VA loans – For veterans and service members, VA loans offer 0% down and expanded eligibility.
USDA loans – Very low-income buyers in rural areas can buy with 0% down using USDA financing.
Down payment assistance – State and local programs provide grants and loans to cover down payments and closing costs.
Seller concessions – Some sellers are willing to cover the buyer’s closing costs as part of the transaction.
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FAQ

Can you put 0 down on an FHA loan?

While most conventional and FHA loans require a minimum 3% to 3.5% down payment, there are unique options available for specific groups, such as veterans and rural home buyers with moderate to low incomes, that allow for zero down payments.

How do I avoid a downpayment on my FHA loan?

Can I get an FHA loan with no down payment? No. FHA loans require at least 3.5% down for borrowers with credit scores of 580 or higher, and a 10% down payment from borrowers with scores between 500-579. The USDA and VA loan programs offer 0% down payment mortgages, but you must meet the eligibility requirements.

What credit score is needed for a home loan with no down payment?

The credit score requirement will vary depending on the type of loan you’re trying to obtain and the lender you work with. You’ll need a credit score of 580 to get a VA loan from Rocket Mortgage, while USDA loans require a FICO^® Score of at least 640.

Can I get approved with no money down?

However, there are some cases where you can buy a home with no money down. Two ways to do it are through Veterans Affairs (VA) loans and USDA loans. These government-backed mortgages can be difficult to qualify for.

What is a zero down payment FHA mortgage?

FHA Down Payment Assistance Mortgage – There are a limited number of lenders who offer a true zero down payment FHA mortgage. It is called the FHA loan with down payment assistance. With this mortgage, the lender will have a different closing cost structure and all of the fees can be rolled into the loan.

Can you get an FHA loan with zero down?

You cannot get an FHA loan with zero down. However, the money for your down payment doesn’t have to come from your account. You may be able to fund your down payment with FHA gift funds and down payment assistance. Can I get seller concessions with an FHA loan?

What is the minimum FHA loan down payment?

The minimum FHA loan down payment is either 3.5 percent or 10 percent of the home’s purchase price, depending on your credit score: For a $300,000 home purchase, that’s $10,500 down at the low end and $30,000 at the top. Note you can only borrow so much with an FHA loan: $498,257 for a single-family home in most housing markets for 2024.

What is a zero-down mortgage?

A zero-down mortgage is a home loan that allows you to purchase a property without making a down payment, enabling you to finance 100% of the home’s purchase price.