The median sale price of a home in the United States has risen to $432,849 as of August. This means buyers would need to put down more than $80,000 for a conventional loan.
However, this is not possible for many Americans. The average worker earns $1,143 per week in the second quarter of 2024, per the Bureau of Labor and Statistics. That amounts to $59,436 yearly.
Saving for a down payment can take some households years. Fortunately, there are ways to buy a home without putting any down payment. This is called a zero-down mortgage.
What Is a Zero-Down Mortgage?
It is a type of loan that does not require a down payment. This means you can finance 100% of the purchase price.
Not everyone qualifies for zero-down mortgage loans. There are specific criteria you have to meet to qualify.
VA Loan
This mortgage loan is insured by the US Department of Veterans Affairs. This loan is available to:
- Active-duty service members
- Military veterans
- Current and former members of the National Guard or Reserve
- Surviving spouses of dead veterans
You can qualify for a VA loan if you have a Certificate of Eligibility from the VA.
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USDA Loan
This loan is designed for low- to moderate-income households looking to purchase a house in rural areas. Specifically, a household's income should not exceed 115% of the median income in the area.
Advantages of Zero-Down Loans
Apart from buying a home with no down payment, zero-down loans also do not come with private mortgage insurance---which is common in conventional loans. This type of insurance is often expensive and adds to the overall cost of homeownership.
In addition, getting a zero-down mortgage means you can own a home sooner than if you were to save up for a down.
Disadvantages of Zero-Down Loans
This type of mortgage has a few downsides that could be deal-breakers. First, zero-down mortgages often come with fees. For example, VA loans come with a funding fee that equals to between 1.25% to 3.30% of the amount borrowed. On the other hand, USDA charges a 1% guarantee fee at closing. They also charge an annual guarantee fee equal to 0.35% of the remaining balance.
Additionally, you will unlikely earn any equity in the home. This could put you at risk of being underwater on your mortgage should the market crash.
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