1. Use government-backed loans by changing your primary residence
There are several government-backed loans for second home options to consider.The first is VA loans, which offer zero-down loans to veterans who meet service time requirements, surviving spouses and those who receive VA disability. VA loans are for primary residences, but one strategy to get around this is to acquire a new home with a VA loan and occupy it as your primary residence within 60 days. Your former home then becomes your second property. The second is USDA loans, which offer 100% financing in eligible rural areas. Like VA loans, you must agree to occupy the new property as your primary residence and make your former home your vacation home.2. Assume an existing mortgage
Another option for a no-down-payment mortgage is to assume an existing mortgage. If the seller’s home has an FHA loan or VA loan, you may be able to assume it — with lender approval — without a down payment.3. Tap into existing home equity
You can also choose to tap into your existing home equity by using a home equity loan to borrow a lump sum against your primary home. Or use a home equity line of credit (HELOC), which is a line of credit, like a credit card, borrowed against the equity of your home. The benefit of a HELOC is flexible tapping — you can use it as needed and pay interest only on what you draw. If you already have a mortgage, these would both be second mortgages that you’d need to pay in addition to the first.4. Reverse mortgage
A reverse mortgage is an option for seniors 62 and older. It allows seniors to access home equity without monthly mortgage payments, and the funds can be used as a down payment for a second home. The loan is repaid when the senior sells the house, moves out or passes away — whenever they no longer live in the home. The heirs or homeowners must repay the loan, usually by selling the home.It’s important to note that this type of loan comes with high fees and complexities. We strongly recommend consulting a financial advisor first if you’re considering a reverse mortgage.5. Gift of equity
Another no-money-down mortgage option is a gift of equity. A gift of equity is when someone with whom you have a close relationship sells you a home below market value. Usually, the person is a family member. If the gift of equity is equal to 20% or more of fair market value, you can avoid down payment contributions. However, you’ll need to consult tax advice to understand the tax implications of a gift of equity.6. Lease with option to buy
A lease with option to buy, or lease option, is a rent-to-own contract that lets you rent the property to test it out, with the opportunity to commit and buy at the end of the lease. Usually, the lease contract is for a number of years. If you decide to buy, rental credits can be applied toward the purchase price and converted into a down payment. It’s important to negotiate these terms upfront with your landlord with the help of a tax professional and real estate attorney.7. Seller financing
Another option is to negotiate directly with the seller to finance the purchase. You may be able to negotiate terms that require less or no down payment.However, it’s very important to be aware that seller financing doesn't include standard mortgage protections, so you may not have the same legal safeguards as you would in a traditional mortgage.8. Retirement account access
You can use your 401(k) to buy a house, even a vacation home, as long as you know the risks to your retirement security and financial future. The first way is to obtain a 401(k) loan. This allows you to borrow money from your 401(k) and repay it with interest. You can also make a 401(k) withdrawal for your home purchase. However, if you are under 59, you’ll have to pay a 10% withdrawal penalty plus income tax.9. Partnership or co-borrower
Lastly, consider partnering with someone who can provide the down payment while sharing the ownership or financing burden of the second property.
Key considerations
Buying a second home with no money down can be a huge leap, and it’s important to know how it will impact your financial future. Here are some things to consider before you take the plunge:- In most cases, you will still have to pay closing costs.
- Lenders may charge higher amounts for second home mortgage rates.
- You may be required to pay private mortgage insurance (PMI).
- Monthly payments will likely be higher without a down payment
- Building equity will take longer.
- You could owe more than the home is worth if property values decline.
- Zero-down loan programs are limited to specific eligibility requirements (VA, USDA).
- You’ll need strong credit and a low debt-to-income ratio to qualify.
An alternative approach: Pacaso co-ownership
So, can you buy a house with no money down? Technically, there are ways, but it can be a tough road to go down. Instead, consider Pacaso as a better approach to affording a second home. Pacaso’s fully managed LLC co-ownership model allows you to purchase 1/8 or 1/4 of a vacation home property. You split the costs with your fellow co-owners, while our local maintenance crews handle daily maintenance and management. You and your loved ones get exclusive access to the home at specific times throughout the year.Get your dream second home with Pacaso
As you think about how to buy a second home with no money down, consider Pacaso for a lower-cost, hassle-free way to co-own your luxury vacation home. Finance up to 70% of your home’s purchase price and sell your home at the time and price of your choice.View our exclusive home listings and learn the benefits of owning a second home with Pacaso today.How to buy a second home with no money down FAQ
01: What is the minimum down payment for a second home?
The minimum down payment for a second home is 10%, though it may be higher if you have less established credit.
02: How do people afford a second home?
People who own second homes often offset some of the expenses of the second property by renting it out for a portion of the year when they’re not using it. Other ways they might save on second homes include buying in up-and-coming areas, avoiding HOAs and co-owning their vacation homes.
They may finance second homes through investment account funds, proceeds from the sale of an asset, retirement account funds, a home equity loan or a HELOC.
03: What credit score is needed for a no-down-payment mortgage?
You will need a high credit score for a no-down-payment mortgage, usually in the mid-600 range at a minimum. For a zero-down USDA loan, you’ll need a credit score of 640; for VA loans with no money down, you’ll need a score of 580 to 620.
