Real Estate Agent Dan Chapman

You’re in Whitefish, MT, and you want to buy a house with no money down, bad credit, and even worse credit history. How do you go about this? And is it even possible? Well, you have come to the right source. This informative guide on “How to buy a house with no Money” will put you on the right path to home buying.


Overview of the Zero-Down Payment Mortgage


Getting a zero-down payment mortgage is like getting a loan for a home with no down payment. A down payment is the first payment toward buying a house or property, and it is payable when the loan is closed. Generally, lenders usually determine how much your down payment is based on your borrowed money.

For example, if you buy a $200,000 property with a 20% down payment, you’ll bring $40,000 to the time of closing. Home loan lenders need a down payment because lenders believe that if you make an upfront investment in your house or property, you will be less likely to fail on your loan. It can take years to save little or enough money to put down the house.

A government-backed loan is the only option to secure a mortgage with no down payment through the major mortgage investors. Loans backed by the government are protected by the federal government, so they are safe. In other words, if you quit paying your mortgage, the government (together with your lender) helps cover the cost.

People with no money or (who have little) to buy a house can get help from the government. They can get loan government-backed loans. This means that a government-backed loan is less risky for the lender, so they can lend to people with more risky financial profiles, like people who don’t have a down payment.

These two types of government-backed loans let you buy a house with no money down: A VA loan and a USDA loan. To get a zero-down mortgage, each loan has a set of rules that you must meet.

A government-backed FHA loan or a traditional mortgage loan might be better for you than a VA loan or USDA loan if you don’t meet the requirements for one of these loans. These loan options will allow you to make a small down payment on a new home.


No Down Payment Money Mortgage Options

Two government-backed loan programs need no down payment. The VA loan program is reserved for active-duty military personnel, while the USDA loan program is designed for low- to moderate-income borrowers buying houses in specified rural regions.


VA Loans

VA loans are available exclusively to active-duty service members, veterans, and qualifying surviving spouses of deceased service members. They are backed by the VA loan and are only available through VA-approved lenders. You do not have to pay mortgage insurance even with no down payment, resulting in a reduced monthly payment compared to other low- or no-down-payment home loan options. 

Additionally, the VA loans removed loan ceilings, allowing VA loan borrowers to buy higher-priced houses without making a down payment.

To qualify for a VA loan, one of the following service requirements must be met:

  • Served a total of 90 consecutive days of active duty during the war
  • Served a total of 181 consecutive days of active duty in peacetime
  • Served in the National Guard or Reserves for more than six years or at least 90 days under Title 32 orders, with at least 30 of such days being 
  • Be relieved of duty due to a service-connected disability.
  • You must be the spouse of a service member who died on duty or suffered a service-connected disability.


To buy a house with a no-money-downpayment VA loan, you must:

  • Prove you’re qualified. Present a certificate of eligibility (COE) demonstrating enough eligibility for no-down-payment financing.
  • Meet the minimum credit score criteria. Although VA requirements don’t have a specific minimum, many VA-approved lenders won’t allow a low credit score (less than 620). Technically, the VA loan does not need a minimum credit score; it requires lenders to consider your complete borrower profile when determining eligibility.
  • Pass the debt-to-income (DTI) ratio criteria. Your total debt divided by your DTI ratio or gross income should be less than 41%. But, your lender may allow a greater DTI ratio with compensating factors like mortgage reserves or a better credit score.
  • Verify you meet the free cash criteria. Also referred to as the VA residual requirement, specific to VA loans and varies mainly on the house’s square footage, your family size, and your housing location.
  • Buy a house that you expect to live in. You can’t buy a second house or investment property with a VA loan. However, you may own more than one home with a VA loan.
  • Pay a financing fee in most cases. Rather than mortgage insurance, the VA loan charges a VA funding fee to cover the program’s taxpayer costs. Your first no-down-payment mortgage cost is 2.3 percent of the loan amount; the fee is 3.6 percent on subsequent houses unless you are exempt from a service-connected disability.


USDA Loans Zero Percent Down Payment

USDA loans do not demand a down payment or a minimum credit score. These loans provide discounted interest rates to foster home ownership in rural communities. Creditworthiness must be established by the loan applicant. Lenders typically demand loan applicants to have a credit score of 620 or better.

USDA loan candidates must meet the following requirements:

  • Be a lawful permanent resident of the United States.
  • Establish creditworthiness
  • Maintain a stable source of income
  • Have a family income equal to or less than 115 percent of the area’s median income
  • In a rural location, serve as the primary residence.

USDA mortgages may be used to acquire the following categories of property:

  • Existing homes
  • Construction of a new home
  • Manufactured homes
  • Condos
  • Townhouses,
  • Foreclosed or short-sale homes.

Typically, buyers are liable for closing costs, lender fees, and mortgage insurance; however, the seller or your lender may reimburse some of these charges. You may qualify for a seller concession and lender credit, covering part or all of your closing expenses.


Advantages and Disadvantages of No-down-payment mortgage

The primary advantage of no down payment for first-time homebuyers is that you may purchase homes without draining your savings. On the other hand, a greater loan amount means a higher monthly payment and closing charges. Because closing fees range between 2% and 6% of the loan amount, the more you borrow, the more you’ll pay. The following is a list of other no-down-payment benefits and drawbacks:



You’ll save more money in the bank.

Your monthly mortgage payment will be increased.

You may contribute extra funds to an emergency fund.

Usually, you will be required to pay mortgage insurance.

You’ll have a financial safety net in case of unexpected home repairs.

You will have no equity at first.

You will get a larger mortgage interest write-off if you itemize your deductions.

You’ll incur additional closing charges.


First-time home buyers: Should I Get a Mortgage Loan With No Down payment?

You should apply for a no-down-payment loan to meet the following criteria:

  • You can afford the increased monthly payment. A larger loan amount requires a larger down payment – ensure that your budget allows for routine and unforeseen costs.
  • You have no immediate plans to sell the house. Sellers often pay up to 6% in fees and costs, so you may have to write a check if you sell your house shortly after taking a zero-down payment mortgage.
  • You’ll gain from owning a property rather than renting. If you’re wary of paying rent and want to put your monthly housing payment toward owning a house, a no-down payment loan may help you get there sooner.
  • You’ve devised a strategy for repaying the credit more quickly in the future. Over time, home equity can be a very strong financial asset, and the sooner you begin developing it, the better. Consider payment loan options. For example, a biweekly mortgage payment assists in paying down your credit more quickly.


What Are My Options If I Am Not Eligible For a Zero-down Loan?

Down payment assistance (DPA) is an alternative to no-money-down loans. A DPA may be the best option if making a down payment on a property is a serious barrier for you, but you cannot qualify for a government-backed loan. The eligibility standards for various grants or second liens differ, so it’s worth your time to investigate your DPA choices and determine what loan you qualify for.


Frequently Asked Questions


Are there strict income restrictions?

Yes. Income limitations for conventional loans depend on the house’s location being bought. Income limitations for FHA and VA government loans are county-by-county and set at 115 percent of the region’s median income. For USDA-RD loans, income ceilings are often higher and based on 1-2 person families and higher yet for 3+ person households.


What is the minimum credit score required for Montana down payment assistance?

A minimum credit score of 640 is necessary.


Is it necessary for me to be a first-time homebuyer?

Absolutely not! The loan program is accessible to all qualified purchasers and is NOT restricted to first-time home buyers.


Do I have to pay back any percentage of the down payment assistance?

A non-repayable grant delivers the immediate equity that’s yours to retain and does not need to be returned. (Available for a government-insured mortgage)

A 0 percent interest deferred loan does not demand payment until the borrower pays off the house, sells, or refinances. (Available for a conventional mortgage)

Homebuyers work with their loan officers to understand the structure best suits their needs.


What type of mortgage do I need?

Down payment help may be paired with different 30-year, fixed-rate mortgages. Participating home lenders may advise you on the optimal mortgage depending on your credit score, income, debt, purchase price, etc. Mortgage possibilities include a conventional mortgage from Fannie Mae or loans from the Federal Housing Administration (FHA), USDA Rural Development, or the VA loan.


Does Montana have a first-time homebuyer program?

Montana mortgage loan programs for first-time homebuyers.

Montana Housing classifies you as a first-time homeowner if you have not bought a property in the previous three years. If this description matches you, contact the agency with one of the following options:


Regular Bond Program in Montana Housing

Montana Housing’s primary mortgage product for first-time homeowners is the Regular Bond Program, which has a low-interest rate on 30-year fixed-rate loans.

Requirements for borrowers:

  • Depending on family size and geographical area, annual household income cannot exceed Montana’s housing loan restrictions.
  • If any of the above apply, you must take a homebuyer education course. Your credit score is lower than 680; your front-end debt-to-income ratio is more than 31%, and your back-end debt-to-income ratio is greater than 41%.


Specification of property:

  • This might be a single-family dwelling, a condominium, or a manufactured house.
  • Cannot exceed Montana housing purchase price limitations, ranging from $311,979 to $418,818 in different parts of the state (higher in some target areas).


Housing Program in Montana – 80% Combined

The 80 percent Combined Loan Program enables first-time homeowners to combine a Montana Housing-approved loan covering 80% of the buy price with another loan covering the remaining 20%. The agency received the second loan from one of its partners.

Requirements for borrowers:

  • Must make a personal contribution of at least $1,000 to the purchase.
  • A credit score of 640 is the minimum requirement.
  • Maximum front-end-to-back-end (DTI) ratio of 29% and maximum back-end-to-front-end (FTE) ratio of 41%
  • A homebuyer education course must be completed.
  • Must conform to the same income and buying price restrictions as the Regular Bond program.


Home Loan Program for Montana Veterans

If you are a Montana veteran buying your first home, you may qualify for the Montana Veterans’ Home Loan Program, which offers an appealing below-market rate. You must be buying your first home to qualify, but there are no income requirements, which means you may apply for a loan even if your family does not meet the definition of low- or moderate-income.

However, there is a loan maximum — presently $349,205 — and you can only use the loan to buy a single-family house or certain prefabricated homes, not a condo. As with other Montana 

Housing loan programs, you must complete a homebuyer education course. Additionally, you must provide at least $2,500 of your cash to the transaction, which might be utilize towards the down payment or closing expenses.

This loan program is first-come, first-served – for the most up-to-date information on availability.


The Bottom Line

If there’s anything you can use from this article and help in your real estate search, then we’re honored that you would stop by and read our article. Mainly, though, we hope that if you move forward with buying a house in Whitefish, MT, you will consider working with The Dan Chapman team. We would love the opportunity to assist you in ensuring that you have the correct mortgage package that suits your financial objectives, whether you are buying a house or not. So contact us today for a free consultation and let us show you firsthand how easy it is to work with us. We would be honored!