Zero down payments - USDA and VA: Man unlocking door

The price is right: Zero-down loans for homebuyers 

Programs offering 100% financing can get qualified buyers into homes, helping agents close more transactions.

Updated December 17, 2022
3 minutes

Key points:

  • The USDA and VA offer zero-down loans to buyers who meet income and other eligibility requirements.
  • Educating clients about loan options can help buyers move forward when cost may otherwise be a barrier.
  • Agents who often work with military clients or who serve rural areas can especially benefit.

The upfront costs of homebuying can be a barrier for some, but zero-down options can help qualified clients land that new home.  

While FHA loans are fairly well known and come with low down payments, the U.S. Departments of Agriculture (USDA) and Veterans Affairs (VA) offer specialized lending programs with 100% financing available for eligible borrowers — an increasingly appealing option as mortgage interest rates have doubled in the past year. 

While both programs have income restrictions and other requirements, they can be a boon to buyers who qualify. 

The USDA loan program can benefit buyers purchasing homes in rural-designated areas, while the VA loan program is for active military personnel, reservists, veterans and their spouses. To find a VA mortgage, consumers need to connect with private VA-backed lenders. Most large lenders are approved by the VA to offer these types of loans.

Some brokerages provide training in government-sponsored home loans, and more agents are now advising consumers about alternative financing as higher borrowing costs have slowed sales. For buyers who are less familiar with the programs, agents can provide essential education and help clients find a lender and navigate the loan process. 

Scott Myers, an associate broker with RE/MAX Dynamic Properties in Alaska, says that VA loans are essential to his business. His office is located near a major military base, and Alaska ranks among the top states with the highest percentage of veterans. The zero-down loans have helped many home purchases move forward in the greater Anchorage area as mortgage rates climbed in 2022, he said. 

"In Eagle River, Alaska, particularly, we do a lot of VA loans for both active and retired military — just because of our proximity to Joint Base Elmendorf-Richardson," Myers said. "I always advise my clients to speak with a lender about getting the best financing and interest rates." 

Likewise, Sondra Richard, an agent with The Real Brokerage in Louisiana, told Real Estate News that she points home shoppers to USDA zero-down payment loans that are available in communities designated by the federal government as rural. 

"We have a lot of rural development activity here," said Richard, whose agency is in Denham Springs, a suburb of the greater Baton Rouge metro area.

The USDA provides a searchable database and map for agents and prospective buyers to determine if a property falls within a rural area and would qualify for the zero-down payment loan. Livingston and Ascension Parish are among the communities Richard serves that are designated as rural areas, she said.

Buyers pay a fee for USDA loans of around 2.5% of the mortgage price, a one-time payment based on the amount borrowed. "I definitely recommend this to our clients, and it helps business," Richard said.

Because only certain buyers qualify for zero-down loans, they aren't a panacea but they can make homeownership possible for eligible buyers. "As we've seen interest rates rise this year, we have seen an influx in inquiries and closings for both programs. But both VA and USDA loans are restrictive in terms of who qualifies for them, limiting the potential increase in activity," said Chuck Simmons, broker-owner and loan originator with Motto Mortgage Midwest. 

"That being said, we are seeing more people that are willing to do 100% financing and are willing to move out of big cities and suburbs to qualify for programs like USDA. Borrowers are becoming more comfortable with purchasing at a higher rate to get into their dream home with the goal of refinancing to a lower rate in the near future."

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