There are several ways to invest in real estate without a down payment, but the two primary loan programs that allow you to do this are VA loans and USDA loans.
Both are government-backed loan programs designed to make homeownership more accessible to specific groups, and both offer 100% financing, meaning you don’t need to bring any money to the table for a down payment.
This is a significant advantage, especially for real estate investors looking to maximize their cash reserves for other investments, property improvements, or as an emergency fund.
Here are two of the most common nothing down loan options:
- VA Loans – Offers eligible veterans and active-duty service members 100% financing for home purchases, with no down payment required. Additionally, there’s no private mortgage insurance (PMI), which further reduces the cost of borrowing.
- USDA Loans – Provides 100% financing for low- to moderate-income borrowers who are purchasing homes in eligible rural areas. While there is no down payment required, borrowers must meet specific income requirements, and the property must be located in a designated rural area, as determined by the USDA.
In addition to these federal programs, some local lenders—especially credit unions—offer special no down payment loan programs. These programs often have their own specific requirements, so be sure to explore all your options.
Veteran Affairs Loan (VA)
VA loans are one of the most powerful tools available to veterans and active-duty service members for purchasing real estate. With benefits like no down payment, no PMI, and competitive interest rates, they’re a great option for those looking to invest in real estate while leveraging their military service. VA loans are particularly well-suited for strategies like house hacking and Nomading™, where you can live in the property and later convert it into a rental.
Let’s dive into the specific benefits and requirements of VA loans.
Eligibility/Requirements
Before you can take advantage of a VA loan, you need to make sure you meet the eligibility requirements. These loans are intended for veterans, active-duty service members, and in some cases, their surviving spouses.
- VA Benefits – To qualify for a VA loan, you must have VA benefits, which typically means you’ve served in the military or are the surviving spouse of a veteran. Eligibility is based on factors like your length of service, service status, and discharge type.
- Certificate of Eligibility (COE) – You’ll need to obtain a COE from the VA. This document verifies your eligibility to lenders and confirms that you meet the VA’s service requirements. Most lenders will help you obtain this certificate during the loan process.
- Credit Score – While the VA doesn’t set a specific minimum credit score, most lenders require a score of at least 620. However, some lenders may be more flexible depending on your other financial factors, such as your debt-to-income ratio and the overall strength of your financial profile.
Owner-Occupancy Requirement
VA loans are designed for owner-occupants, meaning you must intend to live in the property as your primary residence. This makes them slightly different from conventional loans, which may allow you to buy an investment property outright.
However, with a little strategy, you can use a VA loan to purchase a property you later convert into a rental.
- Primary Residence Requirement – You must move into the property within 60 days of closing and occupy it as your primary residence for at least a year. After that, you can convert the property into a rental or use strategies like house hacking to generate income while you live in the property.
- Roommates and Multi-Family Properties – VA loans are perfect for house hacking because you can rent out extra rooms in a single-family home or buy a duplex, triplex, or fourplex and live in one unit while renting out the others. This can help offset your mortgage payments and build long-term wealth through real estate.
Down Payment
One of the biggest perks of a VA loan is the ability to buy a home with no down payment.
This feature alone makes it a highly attractive option for veterans and active-duty service members who want to invest in real estate but don’t have a lot of upfront capital.
- No Down Payment – Unlike conventional loans, which often require 20% down to avoid PMI, VA loans provide 100% financing. This means you can buy a home without any initial out-of-pocket investment, which is especially helpful if you’re using your funds for other aspects of your real estate investment strategy, like renovations or reserves.
- Multi-Family Properties – VA loans allow you to purchase multi-family properties (up to four units) with no down payment, as long as you live in one of the units. This is a huge advantage for investors looking to house hack and build a portfolio of rental properties without having to save up for multiple down payments.
By leveraging the no down payment feature of VA loans, you can invest in real estate sooner and with less cash out of pocket, freeing up your resources for other investment opportunities or property improvements.
Loan-to-Value (LTV) Ratio
The Loan-to-Value (LTV) ratio measures the amount of your loan compared to the appraised value of the property. With a VA loan, you’ll enjoy one of the most favorable LTV ratios available.
- 100% LTV – Since VA loans offer 100% financing, your LTV ratio will always be 100% unless you choose to make a down payment. This means you’re borrowing the full value of the home. Most other loan programs require a down payment that reduces the LTV to 80% or less, so having a 100% LTV gives you more leverage and flexibility. Additionally, you can often roll closing costs into the loan, meaning you can finance nearly the entire purchase and closing process.
Interest Rates
Interest rates are a crucial part of any loan decision. Fortunately, VA loans typically offer some of the best rates on the market, helping you save money over the life of the loan.
- Lower Interest Rates – VA loans often come with lower interest rates than conventional loans. This is because they’re backed by the federal government, which reduces the lender’s risk. Lower interest rates mean lower monthly payments and less interest paid over the life of the loan.
- Fixed Interest Rates – Most VA loans come with fixed interest rates, which means your monthly payment remains consistent over time. This can make budgeting easier and provide financial stability, especially if you plan to hold the property long-term or convert it into a rental after you move out.
Amortization Period
The amortization period refers to the length of time over which you’ll repay the loan. VA loans typically offer the following terms:
- 30-Year Term – A 30-year amortization period is the most common for VA loans. This term provides lower monthly payments, which can improve cash flow if you convert the property to a rental.
- 15-Year Term – Some veterans opt for a 15-year loan term, which allows them to pay off the loan faster and build equity more quickly. However, the higher monthly payments can reduce cash flow, so it’s important to weigh the pros and cons depending on your financial situation.
Choosing the right amortization period depends on your overall investment strategy. A 30-year term can free up cash flow for other investments, while a 15-year term helps you build equity faster.
Private Mortgage Insurance (PMI)
One of the major advantages of VA loans is that they don’t require PMI, even if you’re putting zero down. PMI can significantly increase your monthly mortgage payment, so not having to pay it is a huge benefit.
- No PMI Requirement – With conventional loans, if you don’t put down at least 20%, you’ll typically have to pay PMI, which can add hundreds of dollars to your monthly payment. VA loans eliminate this extra cost, even with zero down. This makes it easier to qualify for future loans and improves cash flow if you convert the property to a rental. The absence of PMI also makes VA loans one of the most cost-effective ways to finance a home purchase.
While there’s no PMI, VA loans do come with a funding fee, which we’ll cover in more detail later. This fee serves a similar function to PMI, helping protect the lender in case of default.
Loan Limits
VA loan limits have changed in recent years, giving veterans and service members more flexibility when it comes to borrowing.
- Full Entitlement – If you have full entitlement (meaning you haven’t used your VA loan benefits before or have repaid a previous VA loan), there’s no limit on the amount you can borrow. This gives you significant buying power, especially in high-cost markets where other loan programs might limit your options.
- Reduced Entitlement – If you currently have an active VA loan or have used your VA loan benefits in the past, you may have reduced entitlement. In this case, loan limits based on county-specific limits come into play. If you exceed these limits, you’ll need to make a down payment to cover the difference.
- Loan Limits by County – VA loan limits vary by county and are tied to the Federal Housing Finance Agency (FHFA) conforming loan limits. In high-cost areas, the limit is higher, allowing veterans to borrow more without a down payment.
Understanding your entitlement status is critical when planning your real estate investments with a VA loan, especially if you plan to use your VA benefits multiple times.
Number of Loans Allowed
You may be wondering if you can hold more than one VA loan at a time. The answer is yes, under specific conditions.
- Multiple VA Loans – It’s possible to have more than one VA loan at a time, as long as your total entitlement covers the loan amount. This is especially useful if you’re planning to buy additional properties without having to sell your current home or refinance out of the VA loan. However, keep in mind that your second VA loan may require a down payment if you’ve used a portion of your entitlement on your first loan.
Having the ability to hold multiple VA loans can be a powerful tool in building your real estate portfolio, especially if you’re using strategies like Nomading™.
Seller Concessions
VA loans allow sellers to cover some of your closing costs, which can further reduce the amount of cash you need to bring to the table.
- Seller Concessions – Sellers can contribute up to 4% of the purchase price toward your closing costs, which can include things like attorney fees, property taxes, and insurance. This can significantly reduce your out-of-pocket expenses and make it easier to close on the property.
Leveraging seller concessions is an excellent way to keep your cash reserves intact, especially if you’re planning to invest in additional properties or make improvements to your new home.
Waiting Period After Major Financial Events
VA loans are more forgiving than conventional loans when it comes to financial setbacks like bankruptcy or foreclosure.
- Bankruptcy – After a Chapter 7 bankruptcy, you’ll need to wait two years before you can qualify for a VA loan. For Chapter 13 bankruptcy, you may be able to qualify after 12 months of on-time payments, with approval from the bankruptcy court.
- Foreclosure – You must wait two years after a foreclosure to qualify for a VA loan. This is shorter than the waiting period for conventional loans, which typically require a three- to seven-year wait.
The shorter waiting periods make VA loans more accessible for veterans and service members who have experienced financial difficulties but are ready to get back into homeownership and investing.
Refinancing Rules
VA loans offer several refinancing options, including the popular Interest Rate Reduction Refinance Loan (IRRRL) and cash-out refinance options.
- Interest Rate Reduction Refinance Loan (IRRRL) – Also known as a streamline refinance, the IRRRL allows you to refinance your VA loan to a lower interest rate with minimal paperwork. You don’t need to currently live in the property to qualify, but you do need to certify that it was your primary residence when you first purchased it. This is an excellent way to lower your mortgage payments if rates drop, without the hassle of a full refinance.
- Cash-Out Refinance – This option allows you to borrow against your home’s equity, up to 100% of the property’s value. However, you must be an owner-occupant to qualify, and it resets the owner-occupancy requirement, meaning you’ll need to continue living in the property after the refinance.
- Recast – Unfortunately, VA loans cannot typically be recast, meaning you can’t lower your monthly payments by paying down a large portion of the loan principal.
The flexibility of the IRRRL makes it a standout feature of VA loans, especially for those who plan to hold their properties long-term.
Property Types Eligible
VA loans are versatile in the types of properties you can buy, making them ideal for investors looking to build a diverse real estate portfolio.
- 1-4 Unit Properties – VA loans can be used to purchase a wide variety of properties, including single-family homes, condos, townhomes, and multi-family properties with up to four units. The only requirement is that you live in one of the units, which makes these loans perfect for house hackers and Nomads™ looking to generate rental income while building equity.
By allowing you to purchase multi-family properties, VA loans provide a unique opportunity to start building wealth through real estate with no down payment.
Special Loan Features
VA loans come with several features that make them stand out from other loan programs.
- No Prepayment Penalty – There’s no penalty for paying off your VA loan early, allowing you to make extra payments or pay off the loan entirely without any additional fees. This gives you the flexibility to pay off your loan faster and reduce the amount of interest you’ll pay over time.
- Funding Fee – VA loans come with a funding fee, which serves a similar purpose to PMI in that it protects the lender in case you default. The fee varies depending on your down payment (if any) and whether you’ve used your VA loan benefits before. The good news is that the funding fee can be rolled into the loan, so you don’t have to pay it upfront at closing.
One of the great things about VA loans is that the funding fee is waived for veterans with service-related disabilities, providing additional savings.
Approval and Underwriting Process
VA loans have their own specific approval and underwriting process, which is generally more lenient than conventional loans but comes with some unique requirements.
- Lenient Underwriting – VA loans are generally easier to qualify for compared to conventional loans. Veterans with lower credit scores or higher debt-to-income ratios often find it easier to get approved for a VA loan than a traditional mortgage. This leniency is one of the reasons VA loans are such a great option for veterans looking to invest in real estate.
- Stricter Appraisal Process – One of the downsides to VA loans is the stricter appraisal process. VA appraisers are known to be more stringent, focusing on the safety, condition, and value of the property. This can sometimes lead to delays in closing, especially if the property needs repairs to meet VA standards.
The appraisal process is important to keep in mind, particularly if you’re buying an older home or a property that may need significant repairs.
Risks and Considerations
While VA loans offer numerous benefits, there are a few potential downsides to consider.
- Funding Fee – Although VA loans don’t require PMI, they do come with a funding fee, which can be significant depending on the size of the loan. However, this fee is waived for veterans with service-related disabilities, and it can be rolled into the loan, so you don’t need to pay it upfront.
- Appraisal Delays – The stricter appraisal process can sometimes cause delays in closing, so if you’re working with a tight timeline, it’s important to plan accordingly and ensure that the property is in good condition before the appraisal.
VA loans are a fantastic financing tool for veterans and active-duty service members looking to invest in real estate. Whether you’re using it for house hacking, Nomading™, or simply to buy a home to live in, VA loans offer some of the best terms and benefits available.