The Truth About Buying a Home if You Do NOT Have a Down Payment

by Karin Aguilar

There’s a lot of misleading, conflicting information about how much money is needed for a down payment.

Some “experts” tell you it’s impossible to buy a home with zero down ...but that’s not true!

For that reason, I made this tutorial to help you separate fact from fiction.

Over the last 15 years I’ve helped hundreds of people buy beautiful, spacious homes …often with a small down payment – or even with no down payment at all.

Here’s the truth about buying a home if you do not have a down payment.

How Much Down Payment Is REALLY Needed?

A lot of people think they need 10% to 20% down, but most loans only require 3.5% down.

But what if you don’t have 3.5% in your savings?

Then you may be eligible for a ZERO DOWN home loan.

Or maybe you can get the 3.5% down payment from somewhere other than your savings.

Let me explain both. First, let’s look at…

ZERO DOWN Home Loans

Right now, there are two common types of ZERO DOWN home loans.

1. Down Payment Assistance

2. VA home loans

Here are the details for…

Down Payment Assistance

The state of California has set aside money to help people buy homes. And in some areas, additional money is available from the city and county too.

This money is referred to as Down Payment Assistance.

Currently, there are 412 down payment assistance programs available in California.

Down Payment Assistance covers ALL of your down payment, and may also pay your closing costs.

This means you can buy a home with ZERO DOWN – if you qualify.

More good news… You do NOT need perfect credit to qualify 🙂

But the state, cities and counties DO NOT help you with your qualification paperwork. Instead, they depend on licensed Mortgage Loan Originators (MLO).

WARNING. Choose your MLO carefully!

Very few MLOs participate in these programs and you’ll need one who’s an expert at their special requirements, forms and paperwork.

I strongly recommend you choose an MLO who closes at least 15 Down Payment Assistance loans per year. Otherwise, the MLO isn’t busy enough to keep up with all of the frequent changes to qualifying, -turning your home buying experience into a nightmare!

If you qualify for Down Payment Assistance but also have the cash available to make the down payment yourself, you may want to consider using your own money.


Three reasons:

1. Using your own money can actually save you money.

Down Payment Assistance programs will often cover your down payment (which is typically 3.5%) and your closing costs (which are typically 4.5%), but some programs require you to repay the Down Payment Assistance when you sell the home.

This means that you’re eventually paying a total of 8% (the 3.5% down payment + 4.5% closing costs) to purchase your home.

But if you have the 3.5% down payment, the lender can often cover all of your closing costs, or your agent can negotiate for the seller to pay your closing costs, meaning that it’s only costing you 3.5%, not 8%, to purchase your home.

2. Your offer to purchase is stronger.

When your agent submits your offer to the seller, your agent has to include details about the financing you will be using to purchase the home.

An offer that uses your own money for the down payment is considered a more attractive offer than one that uses Down Payment Assistance.

3. A few Down Payment Assistance programs limit the price you can sell for, when you’re ready to sell.

This can lead to you selling your home for less than market value, which could drastically reduce the profit you earn when you sell.

Here’s an example from the Buena Park Affordable Housing Program:

Buena Park DPA

In my experience, this is the minority of Down Payment Assistance programs. Most programs do NOT limit the amount you can sell for, when you decide to sell.

Summing Up Down Payment Assistance

Down Payment Assistance could be a great option for you. It can help you become a homeowner, build your personal wealth and save on your income taxes.

And it’s especially helpful if you don’t have the full down payment and can’t get a gift from a friend or family member.

Just keep in mind, these programs are never “one-size-fits-all” so you may want to evaluate all of your options with your agent.

And if you’re in the military, or you’ve served in the US Armed Forces, you may want to use a…

VA Home Loan

A VA home loan does not require a down payment. And participating lenders can issue a credit to cover your closing costs.

This means you can buy a home with ZERO DOWN – if you qualify.

You don’t need perfect credit but you will need to be active or retired US military.

The US Department of Veterans Affairs does NOT lend the money or help you with your qualification paperwork. For that, they rely on VA-approved lenders and licensed Mortgage Loan Originators (MLO).

Warning. Choose your MLO carefully!

Not all MLOs are familiar with VA loans and the special paperwork/processes that go along with them.

When choosing an MLO, I strongly recommend you choose one who closes at least 15 VA loans per year. If the MLO doesn’t close at least 15 a year, then he/she is not busy enough to keep up with the constantly changing program guidelines.

Homes that Qualify for ZERO DOWN

Unfortunately, not all homes are eligible for down payment assistance or a VA loan.

For that reason, it’s important to let your real estate agent know if you’re planning to use down payment assistance or a VA loan. Otherwise, it could cause confusion and frustration.

And if your agent doesn’t understand that some homes don’t fit with these loan programs, you’ll waste time looking at the wrong houses …and you could lose your earnest money deposit.

You see, most agents don’t understand loan programs because they’ve never worked on the “mortgage side” of the real estate industry.

But in addition to being a licensed Realtor for the last 15 years, I’ve also held licenses as a Mortgage Loan Originator in 33 states and Puerto Rico.

And I’ve personally closed hundreds of mortgage loans.

So I understand home loans and how a home purchase can fall apart if the property doesn’t fit the loan program.

As a buyer, you don’t want to waste your time looking at homes that don’t match your loan pre-approval, and you definitely don’t want to get your offer accepted on a home that doesn’t match.


Because the lender’s underwriter will never issue a final approval and the loan will not close. This puts you at risk of losing your earnest money deposit (typically $2,000 to $10,000).

WARNING. Choose your agent carefully!

Take the time to talk with your agent. Find the agent that can talk intelligently about the home buying process – specifically as it relates to you, your needs, and your unique situation.

Not Using Down Payment Assistance or a VA Loan?

If you’re not using down payment assistance or a VA loan, you’ll need a down payment of 3.5% of the purchase price.

If you’ve saved that much (or more), great!

If not, here are 3 places you might find your down payment…

1. Your 401(k).

If you have a 401(k), you most likely can access 50% or more of the funds to purchase a primary residence. Check with your 401(k) Administrator.

2. “Gift” funds.

Many loan programs allow you to accept a cash “gift” from a friend or family member. The gift can be used to pay your down payment and closing costs. If the gift isn’t large enough to cover your down payment, you can combine it with another gift and/or your own funds.

Important: Gifts must be documented properly so check with your agent BEFORE you deposit a gift into your bank account.

3. Tax refund.

What are you doing with your tax refund?

Put it towards your new home!

If it’s not enough to cover the full down payment, keep saving until you have enough. Or combine it with a “gift” from a friend or family member.

Money for Closing Costs

If you have your down payment but don’t have enough money for closing costs, don’t worry! You can still buy 🙂

Some lenders have programs that cover your closing costs, or your agent may negotiate for the seller to pay your costs. Or a combination of both strategies.

Here’s Some Great News.

If you enjoyed this article and you’re planning to buy, then you would really enjoy The Home Buyer’s Kit.

The Home Buyer’s Kit will show you…

  • How to find the best homes before they’re sold
  • How to save money on the price, closing costs and financing
  • How to protect yourself from getting ripped off and getting sued

Click here to get your free copy.

You get all of these reports in The Home Buyer’s Kit:

4 Steps to Stop Renting

If You Also Have a Home to Sell: How to Avoid Getting Stuck with Two Homes, or Worse, with No Home at All

How to Beat Other Buyers to Hot New Listings …Before the Best Homes Are Sold!

5 Ways to Save Money and Avoid Getting Ripped Off …Even if You Don’t Like to Negotiate

4 Ways to Eliminate Home Buying Stress

How to Get an Exceptional Home Loan Experience

Should You Pay Cash or Get Financing?

The Truth About Buying a Home If You Do NOT Have a Down Payment

5 Ways to Improve Your Credit So You Can Own Your Own Home

4 Ways to Get Your Offer Accepted …Even in a Competitive “Seller’s Market” with Low Inventory

How to Protect Yourself …and Your Money …Once Your Offer Is Accepted

6 Things You Must Know When Buying New Construction

It’s free, no pressure, and there’s no obligation.

If you’re planning to buy, click here, and get your free copy of The Home Buyer’s Kit.

Have an amazing day!

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