100% Financing: How to Buy a House With No Money Down
Want to buy a house with no money down? You're not alone. This is one of the most common questions we receive from our readers. The exact nature of the question varies, but it usually goes something like this: "What are my options for buying a home with no money down, with 100% financing from the lender?"
It's a particularly hot topic for first-time buyers with limited funds saved up.
There are several ways to get a home loan for 100% of the purchase price, thereby avoiding a down payment. But most of these options are limited to certain types of borrowers.
For instance, the VA loan program allows qualified borrowers to buy a house with no money down, but the program is limited to military members. Certain credit unions are now offering 100% mortgage financing as well, but these are also limited to a select group of borrowers.
Translation: It's a lot harder to buy a house with no money down these days. There are some options out there, but they are not available for all borrowers. We will discuss those options in a moment. But first, let's talk about why there are so few 100% mortgage-financing options these days.
A Brief History of 100% Mortgages
During the real estate boom of the early to mid 2000s, buying a house with no money down was a lot easier. Back then, 100% mortgage loans were fairly common. Those were the days of 'easy credit' when lenders would do almost anything to generate loans and increase revenues.
But then the house of cards caved in on itself. Bad lending practices and over-leveraging led to one of the worst financial crises since the Great Depression. You know the rest of this story.
Today, most lenders shy away from 100% mortgage financing, unless the loan is backed by the federal government (as is the case with VA and USDA). After all, the lender carries all of the risk in this scenario. No-money-down mortgages cannot be sold through the secondary market to investors. So the lender carries the risk for an extended period of time. This is not a position they like to be in.
3 Ways to Buy a Home With No Money Down
It's harder to buy a house with no money down these days. We've covered that. But there are still some options out there, at least for some borrowers. Here are three ways to qualify for 100% financing:
VA Home Loans: No Down Payment Required
The VA Loan Guaranty program (VA home loans for short) offers 100% mortgage financing to military service members, veterans, and eligible surviving spouses.
In this scenario, a portion of the loan is guaranteed by the federal government, through the Department of Veterans Affairs. As a result of this insurance, lenders generally offer more favorable terms to borrowers. This includes 100% funding in most cases, with no money down from the borrower.
Lenders are also more forgiving of credit problems when issuing VA loans, as compared to "regular" conventional mortgages. So you can see why most military members use this option when buying a house. It offers some compelling advantages!
Credit Unions Offering 100% Financing
In 2013, several credit unions began (or resumed) offering 100% mortgage loans to their well-qualified members. This gives their members a way to buy a home with no money down. But there's the catch. You must be a member of one of these credit unions, and you have to be "well-qualified" in terms of your credit score, debt ratios, and income. So here again, we are talking about a select group of borrowers. They're not available for everyone.
Navy Federal Credit Union made headlines in April 2013, when they announced they would continue offering 100% financing to some borrowers. Their product is known as HomeBuyers Choice. According to their website, this loan product does not require a down payment or private mortgage insurance (PMI). Seller contributions of up to 6% are allowed, which can be applied to the buyer's closing costs.
NASA Federal Credit Union began offering a no-money-down home loan a couple of years ago. It can be used for home purchases in Virginia, Maryland, or Washington, D.C. Their website states it is available for a "limited time only," but no expiration date was given.
State Employees' Credit Union offers 100% mortgage financing to first-time home buyers, up to a maximum loan amount of $400,000.
Florida Credit Union is also in this "club."
This is by no means an exhaustive list of credit unions that offer 100% mortgage loans. There are others, as well. Borrowers can use websites like asmarterchoice.org or mycreditunion.gov to explore their credit union eligibility options.
USDA Loan Program
The U.S. Department of Agriculture (USDA) operates a home loan program for borrowers in certain rural areas. Through this program, borrowers are eligible for 100% financing. This means they could potentially buy a house with no money down. But the program is limited to low and moderate-income home buyers in specific parts of the country. Generally speaking, the borrower's income must be equal to or less than 115% of the local median income.
Recap: Are 100% mortgage loans still available? Yes. But they are limited to certain types and classes of borrowers (military members, low-income rural residents, members of select credit unions, etc.). There is currently no 100% financing product available to all borrowers across the board.
Disclaimers and notes: This article answers the question, How can I buy a home with no money down, using 100% financing from the lender? We strive to offer comprehensive information for borrowers, and to leave no stone unturned in our quest for knowledge. Even so, there may be other no-down-payment options that were not covered above. If you know of such a program, please contact us to tell us about it. We will research the program and, if warranted, add it to the list. We encourage you to continue your research beyond this website.