100% Financing Mortgage: No Down Payment Needed

A 100% financing mortgage allows for purchasing a home without a downpayment, but other costs like inspection, appraisal, and closing fees still apply.

If you’re ready to buy a home and want to start building equity rather than paying rent, a 100% financing mortgage can offer the opportunity to get into your own home faster. These types of mortgages don’t require a downpayment, making it easier for a wide range of homebuyers to purchase a property. 

While you’ll still need funds for closing costs, in some cases, 100% financing mortgages will even roll the closing costs into the loan. Read on to understand how these mortgages work and whether they’re a good fit for you. 

What Is a 100% Financing Mortgage?

A 100% financing mortgage means that you don’t have to make a downpayment to purchase a home. You will, however, usually have to pay for inspection, appraisal and closing, which can cost between 1% and 6% of the loan’s value in total. 

How Does a No Down Payment Mortgage Work?

A no-down-payment mortgage works like a traditional mortgage, except that you aren’t required to make an initial down payment to secure the loan. The most common forms of no-down-payment loans are government-backed Veterans Affairs (VA) or U.S. Department of Agriculture (USDA) loans.

Suppose you plan to purchase a home that costs $300,000. If the loan requires a downpayment, you can expect to pay between 3% and 20% down, which means you’ll need savings of $9,000 to $60,000. With a no down payment mortgage, you could get a mortgage for the full $300,000 and pay it back over time with interest. 

Types of 100% Financing Mortgages Available

The most common types of 100% financing mortgages available are government-backed USDA loans or VA loans. 

USDA Home Loans

The U.S. Department of Agriculture backs USDA loans, which offer 100% financing for qualifying buyers and properties. The Single Family Housing Direct Home Loans offer qualifying borrowers 100% down. 

Requirements to qualify vary by state, but all borrowers must meet household income limits, which vary by household size and location. In addition, the property must be in a rural area defined by the USDA as an eligible rural area. 

VA Home Loans

VA loans are government-backed loans offered by the Department of Veterans Affairs. These loans are available to active service members, veterans and spouses. While VA loans usually don’t require a down payment, you can make a down payment to reduce your VA funding fee, a required one-time payment required to take out a VA loan. 

VA loans are offered through private lenders, including banks and mortgage companies. To qualify for a VA loan, you must be an active service member, veteran or military spouse. In addition, you’ll need to have a valid Certificate of Eligibility (COE) meet the minimum service requirements from the Department of Veterans Affairs (VA) and satisfy the lender’s credit and income requirements

Pros of 100% Financing for Home Loans

There are significant advantages to financing a home loan with no down payment. Here are the advantages you can expect. 

No Down Payment Required

Not requiring a down payment makes homeownership more accessible for those who may not have saved enough. Likewise, if the property requires significant repairs or renovations, you can use additional savings to repair your home. 

Financial Flexibility

Homebuyers can allocate their savings toward other expenses or investments rather than tying up their funds in a down payment. If you can secure a low interest rate, you’ll have the financial flexibility to build an emergency fund, save for retirement and allocate income to other pressing needs. 

Increased Buying Power

100% financing provides increased buying power for the homebuyer, allowing you to purchase a more valuable property because down payment savings do not limit you. This can help you purchase a forever home with enough space for your family to grow into. 

Cons of 100% Financing for Home Loans

100% financing means you could end up paying higher interest rates and ending up with negative equity if the home increases in value. Here’s what you’ll want to consider. 

Higher Interest Rates or Fees

Without equity in the home, 100% financing may lead to higher interest rates and fees as lenders may view these loans as higher risk because of the lack of a down payment. However, even with current high interest rates, you could secure a lower interest rate with a government-back loan. 

Need for Mortgage Insurance

Borrowers may be required to pay private mortgage insurance (PMI) if they do not have a 20% down payment. This varies by the loan type, and VA loans don’t require PMI. 

Negative Equity

If market values decrease, borrowers may be in a negative equity situation, where the value of their home is less than the amount owed on the mortgage. If your home decreases in value before you can build equity, it can be difficult to sell or refinance the property if needed.

Factors to Consider Before Applying for a No Down Payment Mortgage

Below are some general guidelines to determine whether a 100% financing mortgage is right for you and how to increase your chances of loan approval. 

Financial Readiness and Stability

You should consider your financial readiness and stability before applying for a 100% financing mortgage. Otherwise, the risks of ending up with negative equity or higher interest rates can outweigh the benefits. 

Credit Score and History

It’s also important to consider your credit score and history before applying for a 100% financing mortgage. A higher credit score and better credit history can help you secure a lower interest rate, leading to significant long-term savings. 

Employment Stability and Income

You should consider your employment stability and income before applying for a 100% financing mortgage, as you can increase your chances of qualifying and potentially secure a lower interest rate. 

Long-term Homeownership Plans

You should consider your long-term homeownership plans before applying for a 100% financing mortgage, as selling the property within two to three years of purchase can result in negative equity. Likewise, if you’re planning to move within a couple of years, it may be better to save for a downpayment after the move. 

Get 100% Financing Mortgage with Benzinga’s Top Lenders 

Find 100% financing mortgages with Benzinga’s top mortgage lenders. 

Getting a 100% Financing Mortgage

A 100% financing mortgage opens the door to buying a home for more families. With government-backed VA or USDA loans, you could benefit from no down payment, a lower interest rate, and favorable terms to make homeownership within reach. Ready to start researching options? Find the best interest-only mortgages here. 

Frequently Asked Questions