First-Time Home Buyer Loans with Zero Down: Your Real Options in 2024

The myth that you need 20% down to buy a home is one of the most persistent — and most damaging — pieces of misinformation in real estate. It keeps millions of qualified buyers renting for years longer than they need to.

The reality: several loan programs allow qualified buyers to purchase a home with zero down payment. This guide explains each one honestly — including the catches, because there are always catches.

The Three Genuine Zero-Down Loan Programs

Only two federal loan programs offer true 0% down mortgages for most buyers. State programs add a third path for some borrowers.

1. VA Loans (For Veterans, Active-Duty, and Surviving Spouses)

The VA loan is the best zero-down option available, full stop. No private mortgage insurance (PMI), competitive interest rates, and no down payment requirement for eligible buyers.

Who qualifies: Veterans, active-duty service members, National Guard members, reservists with qualifying service, and surviving spouses of service members who died in the line of duty.

Key terms:

• Down payment: 0%
• Credit score: No VA minimum, but most lenders require 580–620
• PMI: None (replaced by a one-time VA funding fee)
• Loan limits: No limits for borrowers with full entitlement
• Property requirements: Must be the borrower's primary residence; property must meet VA Minimum Property Requirements (MPRs)

The VA funding fee: This is the catch most people don't know about. The funding fee is a one-time charge that gets added to your loan balance (or paid upfront). For first-time VA buyers with 0% down, it's currently 2.15% of the loan amount — $6,450 on a $300,000 loan. Veterans with a service-connected disability rating are exempt.

Closing costs: VA loans limit certain fees lenders can charge, but you'll still owe appraisal fees, title insurance, recording fees, and prepaid items. Sellers can pay all of your closing costs under VA rules — something worth negotiating.

Best for: Any eligible veteran. This program is genuinely excellent and underused.

2. USDA Loans (For Rural and Suburban Areas)

The USDA Rural Development Guaranteed Loan is a zero-down program that covers far more geography than "rural" implies. Many suburban areas within commuting distance of major cities qualify.

Who qualifies: Borrowers with moderate income (limits vary by county and household size) buying in USDA-eligible areas.

Key terms:

• Down payment: 0%
• Credit score: No USDA minimum, but most lenders require 640+
• Income limits: Generally capped at 115% of the area median income (AMI). For a family of four, this ranges from roughly $90,000–$150,000+ depending on location.
• PMI equivalent: USDA charges an upfront guarantee fee (1% of loan amount) and an annual fee (0.35% of remaining balance). Both are lower than FHA mortgage insurance.
• Property eligibility: Must be in a USDA-eligible area (check at usda.gov) and be a primary residence

The geographic catch: Check the USDA property eligibility map before falling in love with a specific property. Many suburban and even some small-city properties qualify, but urban areas and their immediate suburbs typically don't.

The income catch: Unlike VA loans, USDA has income limits. If your household earns more than 115% of your county's AMI, you don't qualify — even if the property is eligible.

Closing costs: USDA allows sellers to pay buyer closing costs. The 1% upfront guarantee fee can be rolled into the loan, reducing your out-of-pocket at closing.

Best for: Lower-to-moderate income buyers purchasing in suburban or rural areas.

3. State and Local Down Payment Assistance Programs

These aren't federal loan programs — they're grants, forgivable loans, or second mortgages layered on top of a primary loan (often FHA or conventional). The result can effectively be zero out-of-pocket.

How they work:

• A state housing finance agency (HFA) or local government provides funds to cover your down payment and sometimes closing costs
• These funds may be a grant (no repayment required), a forgivable loan (forgiven after you live in the home for several years), or a deferred loan (repaid only when you sell or refinance)
• The primary mortgage is typically FHA (3.5% down) or a state-specific conventional loan (3% down), with the assistance covering that amount

Finding your state's programs: Every state has at least one HFA. Search "[your state] housing finance agency first-time buyer program" or use the HUD-approved housing counselor locator at hud.gov. Many counties and cities have additional local programs.

Income and purchase price limits apply. These programs are means-tested and typically cap the purchase price at a specific limit (often $300,000–$450,000+ depending on the area).

Best for: Buyers who don't qualify for VA or USDA but have moderate income and need help with the down payment.

What Zero Down Doesn't Mean

Zero down doesn't mean zero cash at closing. This is the most common misconception.

Even with a zero-down loan, you'll still owe:

• Closing costs: Typically 2–5% of the purchase price ($6,000–$15,000 on a $300,000 home)
• Prepaid items: First year of homeowner's insurance, property tax escrow, prepaid mortgage interest
• Earnest money deposit: Typically 1–3% of the purchase price, paid when you go under contract (credited back to you at closing, but you need it upfront)
• Home inspection fee: $300–$600, usually paid before closing

Ways to reduce cash-at-closing with a zero-down loan:

1. Negotiate seller concessions — sellers can cover your closing costs as a concession. VA buyers can request 100% of closing costs from the seller.
2. Request a lender credit — accept a slightly higher rate in exchange for a credit toward closing costs.
3. Use gift funds — VA and USDA allow gift funds for closing costs from family members.
4. Stack a DPA program — layer a down payment assistance program on top of your USDA loan to cover closing costs too.

Zero Down vs. Low Down: Which Makes More Sense?

Going zero down has a real cost: you start with no equity, and you may pay higher mortgage insurance premiums over time compared to putting 5–10% down.

Run the numbers this way:

Option A: Zero down (USDA)

• Loan: $300,000
• Monthly USDA annual fee: ~$87.50
• You keep $15,000 in savings (what you would have spent on 5% down)
• That $15,000 in a high-yield savings account earns ~$700/year at 4.7%

Option B: 5% down (conventional)

• Loan: $285,000
• Monthly PMI: ~$95–$140 (cancels once you reach 20% equity)
• You spend $15,000 upfront from savings

In this scenario, the monthly cost difference is modest. The zero-down option lets you preserve cash — which matters if your savings are thin or you want a buffer for moving costs and home repairs.

Zero down makes more sense if:

• Your savings are limited and you'd be cash-poor after a down payment
• You qualify for VA (no PMI at all)
• Rates are favorable and you plan to stay in the home long enough to build equity

A conventional low-down payment may make more sense if:

• You have solid savings and want to start building equity faster
• The property doesn't qualify for USDA
• You don't have VA eligibility

Getting Pre-Approved for a Zero-Down Loan

The pre-approval process for zero-down loans is similar to any mortgage, but a few things differ:

For VA loans:

1. Get your Certificate of Eligibility (COE) — available through your lender or directly from VA.gov
2. Provide DD-214 (discharge papers) or active-duty statement of service
3. Find a VA-approved lender

For USDA loans:

1. Verify the property is in a USDA-eligible area before making an offer
2. Verify your household income is below the limit for your county
3. Find a USDA-approved lender

For DPA programs:

1. Contact your state HFA or a HUD-approved housing counselor first
2. Get DPA program approval before applying for the primary mortgage — the two need to work together
3. Be prepared for additional documentation requirements

Know Your Closing Costs Before You Apply

Zero-down programs get you in the door without a down payment, but the closing cost picture can still be confusing — especially when you're stacking a DPA program or negotiating seller concessions. Understanding exactly which costs you'll owe, which ones the seller might cover, and which ones can be rolled into the loan is essential before you make an offer.

Our Closing Cost Guide includes a line-item closing cost worksheet for VA, USDA, and FHA loans, plus negotiation scripts for requesting seller concessions. It's designed specifically for first-time buyers who need to understand the numbers before the Loan Estimate arrives.

Download the Closing Cost Guide →

The free version includes a one-page closing cost quick-reference card — a useful starting point for estimating what you'll owe even before you go under contract.