Zero Down Home Loan

What are Zero Down Home Loans?

Because the typical first time home buyer is unable to save thousands of dollars for a down payment, many home loan programs have been designed to assist financially. This allows more people to achieve their long awaited dream. Traditionally, mortgage lenders required applicants to save about 20% toward the purchase of a new home. Before creative options, the majority of lenders only offered home loans for 80% of the purchase price. Thus, new buyers were forced to devote several years to building a cash reserve. Because of zero down home loans, buying a home with little cash savings is doable. For the most part, zero down mortgages are home loans that offer 100% financing.

Few lenders offer consumers zero down home loans, however homebuyers with good credit and steady income are eligible to purchase homes with little to zero down payment. The following are a few options for homebuyers seeking zero down home loans.

*The following is only general information and will not apply to every person’s situation. To learn how zero down home loans can work specifically for you, call Equity Source Mortgage at 763-657-2000.


The Veterans Affairs office grants qualified veterans home loans with zero down payment. The VA guarantees these loans from private lenders. There is no mortgage insurance, but buyers must pay a funding fee or have it tacked onto the loan. The funding fee ranges from 2.1% to 3.3% and varies depending on the applicant. For example, a veteran who is applying for a loan for the first time may be offered a zero down home loan with a funding fee of 2.1%. But if a veteran is applying for the second time, they more than likely will be charged with a funding fee of 3.3%.


This loan is offered by the Department of Agriculture for low to medium income families with decent credit. The property that you are going to purchase must also qualify as a “rural” property in order to obtain the loan. The USDA’s definition of rural extends passed farmland, and includes many suburbs, exurbs as well. The USDA provides a search tool that will tell homebuyers if their desired home is located in a “rural” area.

Pros and Cons of Zero Down Payment Loans

The most alluring part of a zero down home loan is the fact that homebuyers can move into their new home without putting any money down towards the home. Saving the 3.5% or more of the home loan could go towards turning the new house into a home. However, there are a few drawbacks to this type of loan. First off, no money down means that homebuyers will have no equity in their home at the time of purchase. This means that they cannot take out a home equity loan or receive home equity line of credit to make renovations or fix any unforeseen issues. Also homeowners will end up paying more over time than those who make a down payment. This means they will pay the banks thousands of more dollars in interest than necessary.

Equity Source Mortgage

Navigating mortgage and loan rates is complicated! Why not let our team do the hard work for you? Equity Source Mortgage is a trusted mortgage broker in Minnesota. We believe that people deserve a home to call their own. At Equity Source Mortgage, our number one goal is to match you with the best loan for you. Contact us or call us at 763-657-2000 to begin exploring your home ownership journey – YOUR Dream Is Calling!