Zero-down-payment mortgage

What is a zero-down-payment mortgage?

A zero-down-payment mortgage is a loan for a home purchase that requires no money down from the buyer. The borrower obtains a mortgage for 100 percent of the purchase price.

Deeper definition

It’s been difficult to find a lender that will offer a zero-down-payment mortgage since the real estate bubble burst in 2007. However,  zero-down-payment mortgages are still available to buyers who qualify because of their military service or because they live in a specific rural area.

Traditionally, the first step on the road to homeownership is to save money for a down payment — ideally, 20 percent or more — and to finance the remainder of the purchase price with a mortgage loan. However, it’s not always possible for homebuyers to save enough money for a down payment.

Although generally more expensive than conventional mortgages, zero-down-payment mortgages are a lifeline for many. There are several avenues for buyers who need a zero-down-payment mortgage. These include:

  • VA loans: These are available to active-duty military personnel and veterans with honorable discharges, as well as surviving spouses of military personnel killed on duty.
  • USDA loans: The U.S. Department of Agriculture’s Rural Development mortgage guarantee program is very popular and often runs out of money before the fiscal year wraps up. Buyers must purchase in qualifying rural areas and meet income limits to qualify for a zero-down-payment mortgage.
  • Navy Federal Credit Union: The nation’s largest credit union offers 100 percent financing to qualified members who buy primary homes.

Use Bankrate’s calculator to figure out how much down-payment money you need.

Zero-down-payment mortgage example

Joseph and Stacy are going to have a baby. Joseph is in the military, and they live in an apartment that’s too small to accommodate a baby. They decide to buy a home. Because Joseph has several years of eligible service, including active duty overseas, he and Stacy choose to apply for a VA loan. Joseph gets a statement of service from his commanding officer and obtains the required certificate of eligibility from the U.S. Department of Veterans Affairs. After finding a suitable home, they apply for a zero-down-payment VA loan, which is approved.

Are you eligible for a VA loan? Learn more about home loans for veterans at Bankrate’s Veteran Homebuyer Central.

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