Can I buy a house with 0% down?

The short answer to the question “can I buy a house with 0% down?” is:

Yes! However, there is a BIG HUGE BUT!!!!!!

First, let’s discuss what down payment and closing costs are. When you purchase a home for a certain purchase price, the down payment is the portion of the home that is NOT being mortgaged. Generally speaking, the down payment and the mortgage amount to the purchase price of the home.

The minimum down payment is usually 5%, meaning that you are getting a mortgage for the other 95%. So when someone asks the question “can I buy a house with 0% down?”, what they are actually asking is: “can I buy a home that is 100% mortgaged?” Closing costs are things like land transfer tax and legal fees that are another cost of buying a home.

Borrowing 100% Of The Purchase Price

So if you have no personal funds, you are not only asking “can I buy a house with 0% down” if you can borrow 100% of the purchase price of the home, you are also asking for the bank to lend you the closing costs as well. In effect, you are asking for the bank to lend you MORE than 100% of the value of the home. No bank will do this, because there is just too much risk.

For example: if you buy a home for $500K, and you borrow $525K, and you don’t make your mortgage payments and the bank needs to sell the home to recover their losses, they won’t be able to because they might only get $500K for the home, maybe less, and there will not be enough to cover the mortgage, the lawyer fees, commission on the sale and the closing costs. The bank will almost certainly lose their shirts. They won’t do it. UNLESS…

Mom Saves The Day!

Let’s say mom has a home that is worth $500K and mom doesn’t have a mortgage on it. She owns the home outright. Private lenders or institutions will consider lending the $525K IF mom agrees to put up her home as collateral. Now the bank or individual is lending $525K, but they have 2 homes that are worth a total of $1M as security. Now the lender is very safe. In this case the mortgage is “blanketed” over the 2 properties.

There is one mortgage that is holding 2 properties as security or collateral. “can I buy a house with 0% down?”, yes, however, only alternative or private lenders will do blanket mortgages, and these private lenders generally gouge with fees and high rate so be careful. Another way that mom can help, is by being a co-signer.

A Less “Shady” Scenario

Another scenario that is less “shady”, is if you borrow the down payment from an unsecured source. Let’s say for example that you are buying a $200K home (just to keep the numbers easy) and you have $3000 saved up to cover the closing costs. You need a minimum of $10K down (5% of $200K). Let’s also say that you have a $10K unsecured line of credit.

Borrowing The Down Payment

There are some mainstream lenders that will allow you to borrow the down payment from the line of credit. The catch is that you need to have enough income to afford to carry the payments on the line of credit AND the mortgage payments (and the property taxes and heat). So if you make enough money, the banks may entertain this scenario. But keep in mind that good banks like to see that you are responsible with your money and you have the ability to save. So they usually want to see that you at least have the closing costs saved up.

If you would like to see if you qualify for 0% down, please click here to fill out an application with no obligation or commitment.