Can I Buy a House If I Have No Savings? Here’s What You Need To Know

Buying a home is an exciting milestone in life, but it can also feel out of reach, especially if you don’t have much in savings You may be wondering, “Can I really buy a house if I have no savings?”

The short answer is yes, it is possible to buy a house with little to no savings through certain mortgage programs and financing options. However, going in with zero savings is not ideal, as you’ll have less of a financial cushion when unexpected costs pop up

In this article, we’ll break down how you can buy a house with no savings, look at the pros and cons, and alternative options to make homeownership more affordable.

How To Buy A House With No Money Saved

While the typical recommended down payment is 20% of the home’s price, there are a handful of options that allow you to buy with far less or even zero dollars down. Here are some of the most common ways to purchase a home without savings:

VA and USDA Loans

VA and USDA loans are two government-backed mortgage programs that offer 100% financing.

• VA loans are for veterans, active duty military, and surviving spouses. No down payment or PMI is required.

• USDA loans help low-to-moderate income buyers in rural areas. You can qualify with no down payment.

FHA Loans

With an FHA loan, you only need a 3.5% down payment. This down payment can even be gifted by a family member. FHA loans do require mortgage insurance.

Low Down Payment Conventional Loans

Many lenders offer conventional loans with down payments as low as 3%. You’ll pay private mortgage insurance until reaching 20% equity.

Down Payment Assistance Programs

State and local governments offer down payment assistance grants and loans to qualifying buyers. These can cover all or part of your down payment.

Seller Credits

In a buyers’ market, you may be able to negotiate with the seller to cover closing costs or your down payment through a credit at closing.

Pros And Cons of Buying With No Savings

Buying a home with minimal savings can get you into homeownership faster. But it also comes with financial risks. Consider these key pros and cons:

Pros

• Don’t need to spend years saving for a down payment
• Expand home buying options by looking at more expensive properties
• Lock in lower interest rates sooner before rates rise

Cons

• Higher monthly mortgage payment without down payment
• More interest paid over loan term
• Need to finance 100% of purchase price
• Less wiggle room in budget for unexpected costs
• Higher debt-to-income ratio

While possible, a mortgage lender may see zero savings as a red flag when reviewing your application. They want to see you have cash reserves to handle financial hurdles.

Alternatives If You Have No Savings

If your savings account is at zero, buying right away may not be the best option. Here are some alternative steps to strengthen your finances first:

• Set a savings target: Aim to save 5-10% of the home’s price for the down payment and closing costs. This will lower your monthly payment.

• Reduce debts: Pay down credit cards, auto loans, and other debts to improve your debt-to-income ratio.

• Increase your credit score: Having a score of at least 620 will qualify you for better mortgage terms.

• Live below your means: Stick to a tight budget and funnel all extra income into your down payment fund. Cut back discretionary spending.

• Build your emergency fund: Having 3-6 months’ worth of living expenses saved will reassure lenders.

Be patient and focus on your savings diligently. In 12-24 months, you can find yourself in a much stronger place to buy and get approved.

Questions to Ask When Buying With No Savings

If you decide to move forward with a zero down payment mortgage, here are some important questions to discuss with your lender:

• What are the interest rates and monthly payments with 0% down versus 5-10% down? How much more will I pay over the loan term?

• Which mortgage programs do you offer that allow low down payments? What are the specific requirements?

• Will I need to pay mortgage insurance or funding fees? How much will this cost upfront and monthly?

• What closing costs can I expect to pay? Is there any way to have these costs covered or reduced?

• What options do I have if I struggle to make payments in the future, such as forbearance or refinancing?

Tips For Affording a Home With Minimal Savings

If you have your heart set on buying soon, here are some tips to make homeownership affordable even with little money down:

• Pick a modestly priced home. Buying below your preapproval amount will lead to a smaller mortgage and lower monthly payment.

• Get preapproved to see your estimated payment and have a stronger offer.

• Consider FHA, VA, or USDA loans to access low down payment options.

• Ask about down payment grants and assistance. These can cover some or all of your required funds.

• Request the seller to cover closing costs through credits so you can reserve cash.

• Lower your debt load first so more income can go toward your new housing payment.

• Buy mortgage points to lower your interest rate if you can afford it.

• Get a roommate to offset some of your monthly housing costs.

The Bottom Line

While buying a home with minimal or no savings is possible, it also comes with financial risks. Make sure you go over all your options thoroughly and understand the costs. Improving your credit, reducing debts, and building savings will put you in a better position. But if buying now is a priority, take advantage of low down payment mortgage programs and utilize other strategies to free up cash. With proper planning, you can become a homeowner even with $0 down.