Zero Down: What Homebuyers Need to Know
You Don't (Necessarily) Need Huge Savings to Buy
One of the biggest misconceptions I hear is:
"I'd love to buy a house, but I don't have enough saved for the down payment and closing costs."
For many buyers, that assumption keeps them renting longer than they need to. A few years ago, I was one of them and I wish I had had a loan officer tell me what I'm about to tell you.
The reality is that there are programs available that can help qualified buyers with both their down payment and possibly closing costs.
And no, it's not just for first-time buyers.
There are government programs available if you qualify, but there are also lender programs and other assistance options that may help eligible borrowers purchase a home with less money out of pocket than they expected.
While every situation is different, buyers who can answer "yes" to most of the following questions may have options worth exploring:
Do you have steady income?
Is your credit score generally 600 or higher?
Do you pay your bills on time?
Could you afford a mortgage payment if you didn't need a large down payment?
Is saving the down payment the biggest thing holding you back?
If so, keep reading.
Quick Facts
✓ Some programs may help with your down payment
✓ Some programs may also help with closing costs
✓ You do not always have to be a first-time homebuyer
✓ Programs may be available with FHA, Conventional, VA, or USDA financing
✓ Qualification requirements vary by borrower, lender, and program
Before We Get Too Far
This is for informational purposes only. Any examples are to better explain the section.
All loans are subject to credit approval and program guidelines. Loan programs, rates, terms, and qualifications may change without notice. Not all borrowers will qualify. Additional terms, conditions, and restrictions may apply.
Why Zero Down Options?
Lenders realize there are people who, other than not having a large amount of cash saved, are capable of owning a home.
How many times have you heard someone say:
"I can make a $1,800 rent payment every month, but somehow I can't qualify for a $1,800 mortgage?"
You have a good job.
You have good credit.
You pay your bills.
You just don't have an extra $15,000 to $25,000 sitting in a savings account.
That's where down payment assistance and zero down options may help.
Unfortunately, many people don't know these programs exist or understand how they work.
If saving for a down payment has been keeping you on the sidelines, it may be time to take a closer look at your options.
What Is Zero Down?
In simple terms, the down payment is the chunk of money you would normally need to bring with you when you buy a house. It's your portion of the purchase price before the loan covers the rest.
For example, on a $300,000 home using a standard FHA loan, you would normally need a 3.5% down payment. That works out to $10,500.
Zero down means you are not paying that $10,500 out of pocket at closing.
Instead, a DPA program, lender, or other approved source may help cover all or part of that $10,500 for you.
Now, this is not exactly free money. I'll explain that in more detail later.
For now, the important thing is that you may no longer need that full $10,500 sitting in the bank before you can start looking at your homeownership options.
Zero down programs usually fall into two categories:
Grants
Loans
How Do Grants Work?
Grants are usually available through state agencies, local organizations, and other housing initiatives. However, you usually have to be working with an approved lender to use them.
Some grants do not require repayment, while others may include occupancy, refinance, resale, or other program-specific requirements and restriction they put on it.
Speaking of restrictions - grants usually come with more of them than a loan. For instance:
You may need to take a class
There may be income or home price limits
There may be location limits
You may need to own it for a certain period of time
It may be for first-time homebuyers
That's just a few examples. It can change depending on the program.
Two other things to keep in mind with grants:
They can sometimes run out of funds so they are not always available
You may have higher rates or fees on your loan
Deferred Payment Assistance
Not quite a grant but it falls under this category. Deferred payment programs are usually similar to grants in every way except that you are required to pay it back at some point. Usually when the home is sold, refinanced, or paid off.
How Do Loans Work?
Most of the lenders I work with offer a 2nd loan to cover the down payment. This means (using the $300k example) you get a first loan for the $289,500 and then a second separate loan for the $10,500.
The first loan will be a standard loan. Usually FHA. Usually for 30 years.
The second loan is going to vary depending on the type of loan program they offer. The most common types are amortized, forgivable, and deferred.
Amortized
Paid monthly along with the first mortgage and can sometimes be a separate payment. Usually at a higher interest rate than the first but for a shorter period of time.
Forgivable
This usually has no payment and no interest. Then after a certain amount of time they forgive it (write it off). The catch is that you have to keep the first loan for that amount of time and that first loan might have slightly different terms or higher interest than what you would have gotten without the forgivable loan.
Deferred
Similar to the forgivable except you pay it off eventually. Usually when you sell or refinance.
How Much Assistance Is Available?
The amount varies by program.
Some programs provide a percentage of the loan amount, while others offer fixed-dollar assistance.
In Texas, it is usually 2% to 5% of the loan amount, though availability varies by program and borrower qualifications.
For example, on a $300,000 home, a program offering 5% assistance could provide up to $15,000 toward your down payment and eligible closing costs, depending on program guidelines.
What Credit Score Do I Need?
Requirements vary by program and lender.
So far the lowest I've seen is a 600 credit score, while others require higher scores.
Having a 620 or 640 are the base for most as long as the rest of the qualifications pass certain criteria. However, if there are special circumstances they may require a 660 or 680 credit score.
Remember, these are general guidelines according to some of the lenders I work with. These can change and they vary by lender. The big take away here should be that a credit score of 600 gets you in the conversation but higher scores give you more options.
What Other Requirements Are Common?
On top of credit score many programs consider:
Income - Usually 1 - 2 years verifiable
Employment history
Debt-to-income ratio
Occupancy requirements
Homebuyer education requirements
Recent credit history
While every program has different guidelines, lenders will typically review your overall credit profile—not just your score.
Common concerns may include:
Recent late payments (including late rent payments)
Collections
Charge-offs
Bankruptcies
Foreclosures
Short sales
Repossessions
Having past credit issues does not automatically mean you won't qualify.
Many programs have waiting periods after major credit issues, while others may allow certain derogatory items as long as they meet the lender's guidelines.
In general, buyers with no recent major credit issues, stable income, and a demonstrated ability to make payments on time will have the most options available.
What About Closing Costs?
Closing costs are different from the down payment. These are items like:
Taxes
Insurance
Title
Fees
Other costs
The amount of closing costs really depends on a bunch of factors, but a good estimate to start is around 2-3% of the loan. Though it can be higher or lower.
The good news is there are ways of covering all or most of that amount as well. For instance some of the down payment programs offer 5% of the loan. If you are only using 3.5% to purchase using an FHA loan, that leaves the other 1.5% for closing costs.
That means on that $300k home:
Purchase Price: $300,000
Estimated Closing Costs: $9,000
DPA (5%) Available: $15,000
Down Payment Needed: $10,500
The Remainder for Closing Costs: $4,500
Leaving Money to Bring to Closing: $4,500
Depending on the program and what you negotiate with the sellers, buyers may be able to use a combination of:
DPA / Loan Program
Seller concessions
Lender credits
Gift funds
To reduce the amount of cash needed at closing.
In some situations, buyers may be able to purchase a home with significantly less money out of pocket than they expected.
Every Program Is Different
There are several programs available in Texas. Each with different requirements, benefits, income limits, property restrictions, and repayment structures. That's why two buyers with similar incomes and credit scores may qualify for very different options.
There is a Texas specific program: Texas State Affordable Housing Corporation (TSAHC).
Some programs work best for first-time buyers. Others are better suited for repeat buyers. Some focus on low-to-moderate income households, while others have broader qualification guidelines.
Frequently Asked Questions
Can I Really Buy With No Money Down?
In some situations, yes.
This is going to depend on your credit, income, the house and other factors. But if you were able to answer yes to the criteria above, it might be worth checking into.
Can You Buy With No Money Set Aside?
Unfortunately, in most cases the answer to that question is no.
Even with down payment assistance and seller-paid closing costs, there are usually other costs associated with buying a home such as:
Deposits
Inspections
Other costs not covered
So yes, you will need some money set aside before starting the home buying process.
Can I Use a Co-Borrower Even if They Don't Live With Me?
In some situations, yes.
There are certain guidelines depending on if they are related to you or not. This is something you would want to discuss with your loan officer prior to applying.
However, if the co-borrower will be living in the same home, then the relationship does not matter, as long as everyone who will be on the loan qualifies.
Do I Have To Live in Texas?
Because I'm currently only licensed in Texas, I can only tell you about programs and loans available in Texas. However, many of the wholesale lenders I work with are in several states. It's best to reach out to a lender in whatever state you are buying a home in to get details if you are not planning to buy in Texas.
For the programs I am talking about, you don't have to currently live in Texas, but you do have to at least be planning to.
These programs are for a primary home. That means you are planning on living in the home full time.
If you are moving here (or even across the state), you will need to provide a little extra to the underwriters to prove you will be able to pay your mortgage. This might be a transfer letter, job offer, proof that you work from home, or something similar. Each situation is different so reach out before you put in your application to discuss it.
Do I Have To Be A First-Time Homebuyer?
Not always.
Many programs are available to all buyers regardless of how long or if they have ever owned a home.
Do I Have To Take a Class?
Possibly.
Many of the programs require at least one person on the loan to attend a homebuyer class. Even if they don't, I still recommend it. Especially if you are a first time buyer.
Fannie Mae has a free homebuyer class at https://www.fanniemae.com/education. It takes a couple hours to get through, but it's go at your own pace. That means you can log in and out without losing your place so you can stretch it over a few days if needed.
Many programs have a 12 month cap on the class. So, it's best to take it if you are planning on buying in the next year.
Can I Qualify If My Credit Isn't Perfect?
Possibly.
Many buyers assume they need perfect credit to purchase a home, but that's often not the case.
Some programs are available for borrowers with scores starting around 600, though requirements vary by lender and program.
The biggest factors are often:
Recent payment history
Stability of income
Amount of debt
Length of time since any major credit events
If major credit issues have been resolved
Even if you've had credit challenges in the past, it may be worth exploring your options before assuming you don't qualify.
Can I Use Down Payment Assistance With FHA?
Often, yes.
In fact, most of the programs I work with are designed to be paired with FHA loans.
Can I Use Down Payment Assistance With Conventional Loans?
Yes, there are some conventional loan programs that allow the use of approved down payment assistance.
Can I Use Down Payment Assistance With VA or USDA?
Some programs may be available in combination with VA or USDA financing, depending on program guidelines.
Is There A Catch?
Not necessarily, but every program has rules.
Some assistance must be repaid. Some are forgivable. Some have income limits. Some require the home to remain owner-occupied for a certain period.
Another thing to consider is that you may have higher rates or fees in some cases. There are also some restrictions on what you can pay for out-of-pocket if the program does not cover all of the costs. That means you may need to negotiate that the seller pay certain items.
This is why it is important to discuss your loan options before putting an offer in on a house.
Final Thoughts
The biggest obstacle to homeownership isn't always the monthly payment.
For many buyers, it's coming up with enough cash for the down payment and closing costs.
The good news is that there are more options available today than many people realize.
Whether you're a first-time buyer, a previous homeowner, or simply wondering whether you have enough saved to buy a home, it may be worth exploring what programs are available.
You may be closer to homeownership than you think.
Want to see what options you may qualify for?
Reach out and let's talk.
No pressure. No obligation. Just real answers.
Amy Mulneix
956.592.1700 (cell)
amy.mulneix@mottomortgage.com
Motto Mortgage NMLS #2799096
Office NMLS #1787716
Equal Housing Opportunity. Motto Mortgage First Choice, NMLS #1787716. Amy Mulneix, NMLS #2799096. Licensed by the Texas Department of Savings and Mortgage Lending. All loans are subject to credit approval and program guidelines. Loan programs, rates, terms, and qualifications may change without notice. Not all borrowers will qualify. This is for informational purposes only and is not a commitment to lend. Additional terms, conditions, and restrictions may apply. Texas Consumer Complaint Notice available at amysloanapp.com. If you have a brokerage relationship with another agency, this is not intended as a solicitation. All information deemed reliable but not guaranteed. Each office is independently owned, operated, and licensed.