Leslie Tyler

Saving thousands of dollars for a down payment is one of the biggest obstacles facing Louisiana homebuyers.

But here is the good news: You may not need a down payment at all.

USDA and VA loans both offer eligible buyers the opportunity to finance 100% of a home’s purchase price. These are real mortgage programs not gimmicks and they help Louisiana families purchase homes every day.

However, no down payment does not automatically mean no money out of pocket. Let’s talk about how these programs work, who may qualify and what expenses you should still expect.

What does “no down payment” actually mean?

The down payment is the portion of the purchase price you pay upfront rather than finance through your mortgage.

For example, a 3.5% down payment on a $200,000 FHA loan would be $7,000. With an eligible USDA or VA loan, the buyer may be able to finance the full $200,000 purchase price instead.

That does not necessarily eliminate every upfront expense. Buyers may still have:

  • Earnest money
  • Home-inspection expenses
  • Appraisal expenses
  • Closing costs
  • Prepaid property taxes and homeowners insurance

Depending on the loan, appraisal, sales contract and available assistance, some of these expenses may be paid through seller concessions, lender credits or other approved sources.

So yes, it is possible for certain buyers to purchase with very little money out of pocket. But every transaction must be structured individually.

USDA loans: 100% financing in eligible Louisiana areas

A USDA Rural Development loan is designed to encourage homeownership in eligible rural and suburban communities.

And before you picture a house sitting alone in the middle of a field, let me clear something up: USDA-eligible does not always mean what most people consider “way out in the country.”

Many smaller cities, towns and communities throughout Louisiana may qualify. Eligibility is based on the property’s specific address, so you should have the address checked before assuming an area is—or is not—eligible.

The USDA Single Family Housing Guaranteed Loan Program offers qualifying borrowers 100% financing based on the property’s appraised value.

Basic USDA requirements

USDA eligibility generally depends on several factors:

  • The property must be located in a USDA-eligible area.
  • The home must be used as the borrower’s primary residence.
  • The household must fall within USDA’s applicable income limit.
  • The borrower must demonstrate the ability and willingness to repay the mortgage.
  • The property must meet USDA requirements.
  • The loan must receive the required underwriting and USDA approval.

USDA has household-income limits, which is where this program can get confusing.

The income used to determine whether your household is eligible may not be the same as the income used to qualify you for the mortgage. USDA may consider income received by other adult household members, even when those individuals are not borrowers on the loan.

There may also be allowable adjustments for circumstances such as dependents, eligible childcare expenses and certain disability-related expenses.

This is one reason it is important to work with someone who understands USDA guidelines instead of relying on an online calculator or social-media post.

Does a USDA loan have mortgage insurance?

USDA Guaranteed loans do not use conventional private mortgage insurance, commonly called PMI. However, they generally include an upfront guarantee fee and an annual fee.

The upfront guarantee fee can typically be financed into the loan. The annual fee is usually collected as part of the monthly mortgage payment.

Can USDA closing costs be financed?

In some transactions, reasonable and customary closing costs may be included in the USDA loan when the home appraises for more than the agreed purchase price.

For example, suppose you agree to purchase a home for $195,000, but the USDA appraisal supports a value of $200,000. Subject to program requirements, that difference may create room to finance certain eligible closing costs.

An appraisal above the purchase price is never guaranteed, so buyers should not build their entire plan around it. Seller-paid closing costs may also be an option when negotiated in the purchase agreement.

VA loans: a powerful benefit for eligible military borrowers

VA loans are available to eligible Veterans, active-duty service members, certain National Guard and Reserve members, and some surviving spouses.

A VA-backed purchase loan frequently allows an eligible borrower to purchase a primary residence without a down payment, provided the sales price does not exceed the home’s appraised value.

According to the U.S. Department of Veterans Affairs, VA purchase loans may also offer:

  • No private mortgage insurance
  • Competitive interest rates and terms
  • Limits on certain closing costs
  • The ability for a seller to pay allowable costs
  • No penalty for paying the mortgage off early

The VA reports that nearly 90% of VA-backed home loans are made without a down payment.

Basic VA loan requirements

A borrower generally must:

  • Have sufficient VA home-loan eligibility
  • Obtain a Certificate of Eligibility, or COE
  • Meet the lender’s income and credit requirements
  • Have sufficient residual income
  • Intend to occupy the home as a primary residence
  • Purchase a property that satisfies VA requirements
  • Receive an acceptable VA appraisal

The Department of Veterans Affairs does not establish one universal minimum credit score for every VA borrower. Individual lenders, however, may establish their own credit requirements.

That distinction matters. A denial from one lender does not always mean a borrower is ineligible for a VA loan everywhere.

What is the VA funding fee?

Many VA borrowers pay a one-time funding fee. The amount can depend on the type of loan, down payment and whether the borrower has previously used the benefit.

The funding fee can generally be financed into the mortgage rather than paid upfront.

Some borrowers are exempt from the funding fee, including certain Veterans receiving VA compensation for a service-connected disability and other qualifying individuals.

VA borrowers do not pay monthly PMI or FHA-style mortgage insurance.

USDA versus VA: Which program is better?

Neither program is automatically better for everyone.

A VA loan is often the stronger option for an eligible military borrower because it does not require monthly mortgage insurance and is not subject to USDA household-income limits.

USDA can be an excellent option for an eligible civilian buyer purchasing in an approved area. It may also work for a qualifying Veteran when VA financing is unavailable or does not fit the transaction.

The right answer depends on:

  • Military eligibility
  • Property location
  • Household income
  • Credit history
  • Current debts
  • Available funds
  • The property type
  • The home’s appraised value
  • The total monthly payment and closing costs

The lowest advertised interest rate does not always produce the best overall loan. Fees, mortgage insurance, lender credits, seller contributions and long-term costs all matter.

Can you really buy a home with no money out of pocket?

Sometimes—but it requires more than selecting a zero-down-payment loan.

A transaction with very little cash required at closing may involve a combination of:

  • USDA or VA financing
  • Seller-paid closing costs
  • Lender credits
  • Earnest-money credits
  • Eligible assistance programs
  • An appraisal that supports financing allowable costs, when permitted

The numbers must work, the contract must be written correctly and the borrower and property must meet all applicable requirements.

“No down payment” is a program feature.

“No money needed for anything” is an advertising promise that deserves a closer look.

Start with a real preapproval

Before shopping for a home, have a mortgage professional review your income, credit, assets, debts and program eligibility.

A strong preapproval should tell you more than the maximum price you could potentially qualify for. It should help you understand:

  • Your estimated total monthly payment
  • Your expected closing costs
  • How much money you may need before and at closing
  • Whether the property must be in a specific area
  • Which loan program fits your circumstances
  • Whether seller assistance should be included in your offer

At J & L Processing/Mortgages, we work with Louisiana buyers using USDA, VA, FHA, conventional and manufactured-home financing. We do the work upfront because a preapproval should be built to close—not handed out after a five-minute conversation.

If you want to know whether you qualify to buy a home with no down payment, call Leslie Tyler at 318-332-4409

NMLS 1322733

NMLS 1747388

Let’s look at the actual numbers and find out what is possible.

This information is provided for educational purposes only and is not a commitment to lend. Program guidelines, fees, income limits, property eligibility and lender requirements are subject to change. All loans are subject to application, documentation, underwriting, appraisal and final approval.