Saving for a down payment is often the biggest barrier to homeownership, but 100 percent financing offers a way to buy a home with no upfront down payment required. This type of loan finances the full purchase price of the home, allowing eligible buyers to enter the market sooner.
How 100 Percent Financing Works
In a traditional mortgage, buyers typically contribute a down payment—often 20% of the home’s price—to lower the loan amount and establish immediate equity. For example, on a $300,000 home, a 20% down payment is $60,000, and the lender finances $240,000.
With 100 percent financing, the lender loans the full purchase amount, resulting in a 100% loan-to-value (LTV) ratio. LTV is calculated as the loan amount divided by the home’s appraised value. A 100% LTV means the borrower has no initial equity.
This higher LTV represents increased risk for lenders, since if the borrower defaults, recovering the full loan amount can be challenging. Consequently, 100% financing is usually available only through specific loan programs.
Who Qualifies for 100% Financing?
These zero-down loans are mostly available through government-backed programs targeting certain buyers:
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VA Loans: Guaranteed by the U.S. Department of Veterans Affairs, this program helps eligible veterans, active-duty service members, and some surviving spouses purchase homes without a down payment. VA loans include a one-time funding fee that can be added to the loan balance but require meeting credit and income standards. Learn more about VA Loans.
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USDA Loans: Offered by the U.S. Department of Agriculture, USDA loans support home purchases in qualified rural and suburban areas. They require meeting specific income limits and property eligibility. More details are available in our USDA Loan article.
Some lenders may provide 100% financing opportunities through specialized programs aimed at professionals like doctors or certain community members.
Pros and Cons of 100 Percent Financing
| Pros | Cons |
|---|---|
| Buy a home sooner without waiting to save a down payment | Higher monthly payments due to larger loan amounts |
| Preserve savings for other expenses or emergencies | No initial equity; risk of negative equity if home value drops |
| Access homeownership for buyers with limited upfront cash | Additional fees, such as VA funding fees or USDA guarantee fees |
Understanding Negative Equity: Negative equity, or being “underwater,” occurs if your home’s market value falls below your owed mortgage balance. For example, buying with 100% financing on a $300,000 home that drops to $280,000 in value leaves a borrower owing more than the home’s worth.
Common Misconceptions
- Zero down doesn’t mean zero cost: You still need to cover closing costs, which average 2-5% of the home’s price and include fees for appraisal, title insurance, and lender services.
- Not everyone qualifies: VA and USDA loans have eligibility requirements including credit scores typically above 620, stable income, and manageable debt-to-income ratios.
Is 100 Percent Financing Right for You?
This option suits buyers with stable finances, an emergency fund, and plans to stay in the home long enough to build equity. If your finances are uncertain or you expect to move soon, saving for a traditional down payment might be safer.
For more details on related terms, see our glossary on Loan-to-Value Ratio (LTV).
References
- U.S. Department of Veterans Affairs: https://www.va.gov/housing-assistance/home-loans/
- USDA Rural Development Single Family Housing Guaranteed Loan Program: https://www.rd.usda.gov/page/single-family-housing-guaranteed-loan-program
- IRS Publication on Mortgage Interest Deduction: https://www.irs.gov/publications/p936
Learning about these loans can empower you to make informed decisions about your path to homeownership.
