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No down payment mortgage for the first-time home buyer

You want to buy a house. You have a good job and a high credit score, but you don't have a down payment (or money for closing costs). Can you buy a house without a down payment and no closing cost money? Maybe. All of the popular mortgage programs allow "donors" to give you money for the down payment and closing costs. Eligible "donors" include a close friend with a clearly defined and documented interest in the borrower (i.e. fiancé), relative, or a charitable organization (i.e. church), municipality, or nonprofit organization as a gift.

The lender will require extreme documentation showing the money transfer from the donor to the home buyer's bank account. Do not accept cash from a relative or any other acceptable "donor", because the lender is unlikely to recognize the gift money. The money transfer must be made by check or wire transfer and the donor must sign off on a lender-provided "gift letter". If you need gift money for the earnest money deposit, speak to a lender in advance of the purchase to document the earnest money deposit.

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If you're not able to find one "donor", try to find multiple donors to meet the down payment and or closing cost requirement. If the parent(s) will pledge 50% of the down payment, ask your brother, sister, aunt, uncle, grandparent(s) to each pledge a portion of the down payment and closing costs. Each donor will be required to sign a separate gift letter and provide bank statements.

USDA home loan down payment

The USDA home loan program was created by the United States Department of Agriculture to help low to moderate income house buyers in rural, under-served areas in the United States buy homes. The USDA loan does not require a down payment (100% financing) and the seller is permitted to pay a large percentage of the home buyer's closing costs. If the seller refuses to pay the home buyer's closing and escrow costs, all (or part) of the cash requirement for closing can be paid for by a close friend, relative, or a charitable organization (i.e. church), municipality, or nonprofit organization as a gift. The lender provided "gift" letter states that there are no repayment arrangements and that all money transferred to the home buyer is purely a gift to facilitate the purchase of the house.

The USDA requires the mortgage lender to document that the "gift" money has been transferred to the borrower's account and show proof of the transfer of the gift funds from the donor's account. The lender may want a copy of the donor's canceled check or withdrawal slip and the borrower's deposit slip. The donor may give the closing agent a certified check for the amount of the gift when the money is not transferred prior to settlement. The lender will require a copy of that check (or a settlement statement) showing receipt of that check from the donor.

The USDA also permits an unsecured loan from a bank, family member, or credit union, or even a credit card cash advance. A word of caution, DO NOT borrow money or obtain any money for eligible donors without first speaking to a loan officer. Any cash transfers must be documented carefully by the lender. Read more about USDA Loans

Veteran loan down payment

The VA home loan has been around since the end of World War II to help qualified veterans to buy a house. The Veteran's Administration does not require a down payment and the seller is permitted to pay all closing costs on behalf of the veteran. Eligible "donors" include a close friend with a clearly defined and documented interest in the borrower, relative, or a charitable organization (i.e. church), municipality, or nonprofit organization as a gift. Read more about VA Loans.

FHA home loan down payment

The Federal Housing Administration (FHA) requires a modest down payment of 3.5% for a single-family home or an FHA approved condominium. The down payment can be paid by the home buyer or can be paid for by a close friend (with a clearly defined and documented interest in the borrower), relative, or a charitable organization (i.e. church), municipality, or nonprofit organization as a gift. The donors may also pay any and all closing, prepaid, and escrow costs. The mortgage lender will require a gift letter acknowledging the money transfer from the donor/giver to the home buyer. The lender will also require a bank statement from the donor's account acknowledging the source of the gift money and a also provide the lender with a withdrawal slip and an updated bank statement certifying the receipt of the gift money.

Conventional loan down payment

The conventional loan is a mortgage that meets the underwriting and lending guidelines of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Corporation (Freddie Mac). The conventional home loans are (technically) not backed by the Federal government. Fannie and Freddie permit donors to pay for the down payment and closing costs for the home buyer, however, the entire down payment of 20% is required for a no down payment mortgage. Read more about Conventional Loans

Down payment and closing cost assistance programs 

Many states, counties, and cities have down payment and closing cost assistance programs. The best way to track down payment and closing cost grant money is to call a HUD Approved housing counseling agency for information on available programs.

The Federal Home Loan Banks provides the grant money to applicants whose household income is at or below 80% of the area median income. See Federal grants for first-time home buyers

Down payment gift tax implications

There is an IRS gift tax. As of 2015, a married couple filing a joint return can gift up to $28,000 to a child or other family member or give up to $14,000 to any one person without incurring the gift tax. The tax is paid by the person donating the money. Consult a tax professional for the tax implications of down payment/closing cost gift tax for complete information

Frequently Asked Questions About No Down Payment Mortgages

Q. How to buy a house with no down payment?
A. Assuming you are not a veteran and your income and/or purchase location do not meet the USDA guidelines, then obtain a monetary gift for the down payment from an eligible donor and apply for an FHA, HomeReady™ or Conventional 97 loan. You should also hunt for a first-time home buyer assistance program through the city, county, or state.

Q. How much is a down payment without PMI?
A. A down payment of 20% is required to avoid the dreaded private mortgage insurance (PMI) charge.

Q. Should I get a loan for a down payment?
A. That's a big no, no. The mortgage rules prohibit borrowing money to be used for the down payment or closing costs. That's one of the reasons, lenders want to review your bank statements. They want to find out if there is a large deposit which could be a loan.

Q. What is the lowest down payment for a conventional loan?
A. The lowest down payment mortgages for a conventional loan are the HomeReady and Conventional 97 programs. Both loans require a 3% minimum down payment.

Q. What is a down payment example?
A. Let's say you're purchasing a home for $100,000 and the down payment is 3.5%, multiply $100,000 by 3.5% and the result is a $3,500 down payment.

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