Purchasing a home can be a very expensive feat. It can seem impossible to save up for a 20% down payment of your dream home’s cost. Mortgage loan lenders require a lump sum of money as a down payment for a house because it lowers the risk of you not paying back your mortgage. While there are many options for a low cost down payment, there are only two main ways to secure a home without a down payment at all: The USDA housing loan and VA housing loan.

Option 1: Apply for a USDA loan

The U.S. Department of Agriculture (USDA) mortgage program offers a USDA home loan that allows buyers to purchase a home with zero down payment. This loan is available for eligible rural and suburban homebuyers. The loan is designed to improve the economy and quality of life in rural America. The USDA loan is probably one of the least-known mortgage assistance programs that the government has to offer, and is a lot more accessible than you may think. Here is a step-by-step guide to applying for a USDA loan:

1. Determine if you are eligible to apply for a USDA loan.

If all of the following statements are true, you are eligible for a USDA loan:

  • “My home is located on the USDA map of eligible areas.
  • “My home will not be a working farm.”
  • “My home will be a single-family unit AND I will live in it as my primary residence.”
  • “The combined gross income in my household is not more than 115% of my county’s median income.”
  • “My debt-to-income ratio is less than 45%.”
  • “My FICO score is 640 or higher.”

2. Gather all required documents.

Depending on the lender you plan to get your USDA loan from, they may ask for different documents to determine your approval. Here is a list of common documents that USDA lenders ask for. It’s best to have all of these documents on hand, in case you have to provide them to your lender:

  • W-2's and tax returns
  • Pay stubs
  • Photo ID
  • Bank statements
  • Social Security awards letter

3. Get pre-approval from a lender that specializes in USDA loans.

Many lenders in the U.S. distribute USDA loans, but some may only do it a few times a year. It will be in your best interest to find a USDA-approved lender that specializes in these types of loans to maximize your chances of being approved. Based on any debt and your income, your lender will determine how much borrowed money you can be approved for. Though a USDA pre-approval doesn’t guarantee an actual USDA loan, it can work towards your advantage while house shopping. Real estate agents prefer to see that you have a USDA pre-approval letter from a lender because it shows them that you are serious about buying.

4. Find a USDA-approved home.

With the help of a real estate agent that has experience in USDA housing, you will be able to properly weigh your options by navigating the market of USDA-approved homes.

5. Sign a purchase agreement with the home seller.

Once you find the home that fits all of the requirements necessary for a USDA loan and suits all of your personal desires, you will be able to work with your lender and real estate agent to make an offer. At this point, you and the seller will be able to negotiate how much of the closing costs you will need to cover. Once you and your seller have come to an agreement, your lender will require a USDA loan appraisal. This is to ensure the safety of the home you are about to buy to make sure it is move-in ready. This will also verify that the home meets USDA standards.

6. Close on the loan.

Once the application, appraisal, and other supporting documents have been reviewed and approved, the USDA will sign off on your loan file and you will receive a “clear to close.” This means that you are now ready to sign the final paperwork, take ownership of your new home, and move in.


Option 2: Apply for a VA home loan

The VA home loan, backed by the U.S. Department of Veterans Affairs is designed to give U.S. veterans, service members, and military spouses the opportunity secure homes without needing amazing credit or making a down payment. Like a USDA loan, VA home loans are distributed by private lenders, but a portion of it is backed or guaranteed by Veterans Affairs, which gives the lenders comfort in extending these loans for no down payment, lenient rates, and terms. Here is a step-by-step guide to applying for a VA home loan:

1. Determine if you are eligible to apply for a VA home loan.

If any of the following statements are true, then you are on track for eligibility to apply for a VA home loan:

  • “I am an active-duty member.”
  • “I am a member of the National Guard.”
  • “I am a veteran.”
  • “I am the spouse of a deceased veteran.” If any of the following statements are also true in combination with any one of the statements above, you are still on track for eligibility:
  • “I served 90 consecutive days of active service during wartime.”
  • “I served 181 consecutive days of active service during peacetime.”
  • “I served for more than 6 years in the National Guard or Reserves.”
  • “I am the spouse of a service member who died in the line of duty or from a service-related disability.” Lastly, a credit score of at least 640 is required to apply for a VA home loan.

2. Gather all required documents.

Depending on the lender you plan to get your VA home loan from, they may ask for different documents to determine your approval. Here is a list of common documents that VA home loan lenders ask for. You should have all of these documents on hand, just in case you need to give them to your lender:

  • W-2's and tax returns
  • Pay stubs
  • Photo ID
  • Bank statements
  • Social Security awards letter
  • Certificate of Eligibility (This can be ordered by the Lender quicker)
  • Form 28-1880 (Request for COE)
  • Form DD-214
  • Form 28-8937 (For service Connected Disability Benefits only)

3. Find a VA-approved home.

With the help of a real estate agent that has experience in VA housing, you will be able to properly weigh your options by navigating the market of homes that qualify for VA home loans.

4. Sign a purchase agreement with the home seller.

Once you find the home that fits all of the requirements necessary for a VA home loan and suits all of your personal desires, you will be able to work with your lender and real estate agent to make an offer. At this point, you and the seller will be able to negotiate how much of the closing costs you will need to cover. Once you and your seller have come to an agreement, your lender will require a VA home loan appraisal. This is to ensure the safety of the home you are about to buy and to make sure it is move-in ready. This will also verify that the home meets VA standards.

5. Close on the loan.

Once the application, appraisal, and other supporting documents have been reviewed, the lender and VA will sign off on your loan file and you will receive a “clear to close.” This means that you are now set to sign the final paperwork, take ownership of your new home and move in.

If you don’t qualify for either of these no-down payment options, consider looking into low-down payment options. The Federal Housing Administration (FHA) loan allows down payments for as low as 3.5%. Many banks and credit unions offer their own specific mortgage loan options for possibly even less. Choosing one of these options can make your dream of become a homeowner a reality.