Zero Down First Time Buyer Home Loans: Your Guide to Homeownership with Little Money Down

Buying your first home is an exciting milestone. But for many, coming up with a big down payment can be a major obstacle. That’s where zero down first time buyer home loans come in.

These specialized mortgage programs allow eligible borrowers to purchase a home without putting any money down. For first-time homebuyers with limited savings, these loans provide an accessible pathway to homeownership

In this comprehensive guide, we’ll explain everything you need to know about zero down payment loans, including:

• Types of zero down first time buyer loans
• Pros and cons
• Qualification requirements
• How to get a down payment as a first-time buyer
• FAQs

Let’s get started!

What Are Zero Down First Time Buyer Loans?

Zero down first time buyer loans also called 100% financing mortgages are designed to help first-time homebuyers purchase a home without a down payment.

Instead of the typical 20% down payment, these loans allow eligible borrowers to finance 100% of the purchase price. The most common options are VA loans, USDA loans, and some state and local first-time buyer programs.

While a zero down loan sounds too good to be true, it’s a viable option for many buyers. These loans make homeownership more accessible by removing the huge upfront cost of a down payment.

However, it’s important to note zero down mortgages often have stricter eligibility requirements. Factors like income limits, location, credit score, and debt-to-income ratio come into play.

Types of Zero Down First Time Buyer Loans

There are several types of mortgages that offer zero down payment options specifically for first-time homebuyers. Here are some of the most common:

VA Loans

VA loans are backed by the U.S. Department of Veterans Affairs. They allow active duty military, veterans, reserves/guard members and surviving spouses to buy a home with no money down.

VA loans also have no monthly mortgage insurance requirement. This helps lower the monthly payment.

USDA Loans

USDA loans are issued by the U.S. Department of Agriculture to help low-to-moderate income buyers in rural areas. These zero down payment loans are available for both first-time and repeat buyers.

Your property must be located in an eligible rural area. Income limits also apply based on the location.

State/Local Down Payment Assistance Programs

Many state and local governments offer down payment assistance grants and loans for first-time buyers. These programs can cover your entire down payment, allowing for zero out-of-pocket costs.

Eligibility varies, but these programs target low-to-moderate income buyers. They can be combined with an FHA, VA, USDA or conventional loan.

HomeReady & Home Possible Loans

Fannie Mae and Freddie Mac back these conventional loans that allow 3% down payments. Flexible credit and income requirements help expand access for first-time buyers.

Gift funds and grants can be used for the down payment and closing costs.

Pros and Cons of Zero Down First Time Buyer Loans

Zero down loans offer unique advantages – but also potential drawbacks to consider.

Pros

• Become a homeowner faster without saving for a down payment first
• Keep cash free for other priorities like an emergency fund
• May qualify for down payment assistance grants
• Lower monthly payments than a comparable loan with a down payment

Cons

• Limited home equity compared to buyers who make a down payment
• Higher interest rates than conventional loans
• Monthly mortgage insurance premiums required
• Restrictions on type or location of home
• Specific income and credit score requirements

Overall, the pros often outweigh the cons for motivated first-time buyers. But be sure you understand the tradeoffs before choosing a zero down mortgage.

Qualification Requirements for Zero Down Loans

While programs exist to help first-time buyers, zero down loans aren’t automatic. You’ll still need to meet certain criteria.

Here are some common requirements:

• Credit score of at least 580-640

• DTI ratio below 50%

• Income limits based on location

• Homebuyer education course

• Loan limits on purchase price

• Primary residence only

Always confirm specific requirements with lenders. VA, USDA and down payment assistance programs have distinct qualifying criteria first-time buyers must meet.

How Can First-Time Buyers Get a Down Payment?

Coming up with even a small down payment can be a challenge for first-time buyers. If 100% financing isn’t an option, here are some ways to get funds:

• Down payment assistance programs – State/local grants or deferred loans

• Gift from family – Get gift letter to document source

• Save aggressively – Make budget cuts, reduce debt, automate savings

• Sell assets – Bank CDs, stocks, bonds – understand tax implications

• Employer assistance – Some companies offer help with down payment

• Borrow from 401(k) – Allows up to $50,000 as a loan to yourself – know the rules

• Lender credits – Pay a higher rate in exchange for closing cost help

• Combination loan – Piggyback an 80% first loan with a 10% second loan

Explore multiple options to find the right down payment solution for your financial situation.

FAQs About Zero Down First Time Buyer Loans

Can I get a zero down payment mortgage with bad credit?

Most zero down loans require a minimum credit score around 580-620. If your score is lower, focus on improving it before applying.

What FICO score is needed for first-time home buyer programs?

Typical credit score requirements are 580-640 for zero down loans. Low down payment options like FHA generally need a 620 FICO score.

Can I buy a house with no money down and no closing costs?

It’s rare to buy a home with absolutely no cash outlay. But programs that cover down payment can help reduce total closing costs. Negotiating seller credits can also lower your requirement.

How much income do I need to qualify for a zero down home loan?

Income limits for zero down loans vary by lender and location. In general, your income should be moderate enough to meet debt-to-income requirements.

Can I get approved for a no down payment mortgage while self-employed?

Yes, but you’ll need to provide additional documentation like tax returns. Two years of self-employment history is often required.

What are the income limits for the USDA zero down payment loan?

USDA loans are available to borrowers earning up to 115% of the area’s median income. Check your eligibility using the USDA Income and Property Eligibility tool.

Can I remove PMI with a no down payment loan?

With zero down, you start with no home equity. You’ll need to build 20-22% equity through appreciation or pay down principal before removing PMI.

Should I pay points on a zero down home loan?

Paying points reduces the interest rate but adds to closing costs. With zero down, focus on minimizing upfront costs unless the break-even period for points is very quick.

Find The Right Zero Down First Time Buyer Loan

While saving up a 20% down payment used to be the golden rule for buying a home, today’s options allow first-time buyers to achieve homeownership on their own terms.

Zero down payment mortgages empower motivated buyers to purchase sooner by removing the barrier of a large upfront investment.

Hopefully this guide provided you with a helpful overview of the different zero down first time buyer loans available. The key is finding a loan that fits your specific financial situation and homebuying goals.

Ready to stop renting and start owning your own home? Connect with a lender today to explore your zero down mortgage options. With the right loan program, you could be moving into your new house sooner than you may have thought possible!