Owning a second home—whether for vacations, rental income, or future retirement—is a goal for many. According to the National Association of Realtors, vacation home sales have risen by nearly 16% in recent years, showing growing interest in second properties. However, a major challenge for buyers is the down payment, which typically ranges from 10% to 20% of the home’s price. But what if there was a way to buy a second home with no money down?
The good news is that several financing strategies can help you secure a second home without a traditional down payment. However, it’s important to note that each method has different eligibility requirements, so understanding which options best fit your financial situation is crucial. In this guide, we’ll explore the best no-down-payment options, their pros and cons, and how you can qualify.
1. Use Home Equity from Your Primary Residence
Before using your home’s equity, get a home inspection to check for necessary repairs. This helps you avoid unexpected costs and choose the right financing strategy.
If you already own a home, you can tap into its equity to finance the down payment for your second home. The two most common ways to do this are:
Home Equity Loan
- A lump-sum loan based on the equity in your primary residence.
- Fixed interest rates and predictable monthly payments.
- Can borrow up to 90% of your home’s equity.
Example: Sarah wanted to buy a lake house as a second home but didn’t have enough cash for a down payment. By taking out a home equity loan on her primary residence, she was able to secure the necessary funds while maintaining a stable monthly mortgage payment. This allowed her to purchase the vacation home without disrupting her savings.
Home Equity Line of Credit (HELOC)
- A revolving line of credit that allows you to borrow as needed.
- Works like a credit card—you only pay interest on what you borrow.
- More flexibility but typically comes with variable interest rates.
Pros:
✔ No need for a traditional cash down payment.
✔ Keep your savings intact.
✔ Competitive interest rates compared to other loan options.
Cons:
✖ Increases overall debt.
✖ Uses your primary home as collateral—risk of foreclosure if payments are missed.
✖ Higher monthly payments.
2. Use a VA Loan (If You Qualify)
Veterans, active-duty military personnel, and some military spouses may qualify for a VA loan, which allows for zero down payment.
How It Works:
- VA loans can’t be used directly for a second home, but there’s a workaround:
- Buy a new home with a VA loan as your primary residence.
- Convert your existing home into your second home or rental property.
- If you’ve paid off a previous VA loan, you may be eligible for a one-time restoration of your VA loan benefits.
Pros:
✔ Zero down payment required.
✔ No PMI (Private Mortgage Insurance), lowering monthly costs.
✔ Competitive interest rates compared to conventional loans.
Cons:
✖ Must meet eligibility criteria.
✖ Strict occupancy rules—must live in the home as a primary residence for at least 60 days.
✖ Funding fee (though it can be rolled into the loan amount).
3. Consider an Assumable Mortgage
If the seller of the second home has an FHA, VA, or USDA loan, you may be able to assume their mortgage—taking over their existing loan terms without a down payment.
How It Works:
- Instead of applying for a new mortgage, you take over the seller’s loan.
- If the loan has a low interest rate, this could be a major financial advantage.
- Requires lender approval and meeting credit requirements.
Pros:
✔ Avoid a down payment.
✔ Lower interest rates (if seller’s rate is lower than current market rates).
✔ Possible savings on closing costs.
Cons:
✖ Seller’s mortgage must be assumable.
✖ Credit and income verification required.
✖ May need to pay the difference if the home’s value is higher than the remaining loan balance.
4. Explore Rent-to-Own (Lease-to-Own) Agreements
A rent-to-own contract allows you to rent the home for a set period with the option to buy it later. A portion of your rent payments can go toward the future down payment.
How It Works:
- You sign a lease agreement with the option to buy after a set number of years.
- A portion of your rent payments contributes toward the home’s purchase price.
- You lock in today’s price and build equity over time.
Pros:
✔ No immediate down payment required.
✔ Allows time to improve credit score & financial situation.
✔ Secure today’s price before potential appreciation.
Cons:
✖ Monthly rent may be higher than market value.
✖ If you decide not to buy, you may lose your accumulated rent credits.
✖ Hidden fees—some contracts include additional charges that can make the final purchase price much higher.
✖ Contracts may not guarantee the purchase—some agreements give the seller the right to refuse the sale, leaving the buyer with lost time and money.
✖ Legal complexity—need a well-structured agreement to protect both parties and ensure the option to buy remains valid.
A rent-to-own contract allows you to rent the home for a set period with the option to buy it later. A portion of your rent payments can go toward the future down payment.
How It Works:
- You sign a lease agreement with the option to buy after a set number of years.
- A portion of your rent payments contributes toward the home’s purchase price.
- You lock in today’s price and build equity over time.
Pros:
✔ No immediate down payment required.
✔ Allows time to improve credit score & financial situation.
✔ Secure today’s price before potential appreciation.
Cons:
✖ Monthly rent may be higher than market value.
✖ If you decide not to buy, you may lose your accumulated rent credits.
✖ Legal complexity—need a well-structured agreement to protect both parties.
5. Use Seller Financing
In a seller financing arrangement, the homeowner acts as the lender, allowing you to buy the home with little to no down payment.
How It Works:
- Instead of going through a bank, the seller loans you the money directly.
- You agree to a payment plan and interest rate with the seller.
- Terms are negotiable, and in some cases, no down payment is required.
Pros:
✔ Easier to qualify if you have low credit or unconventional income.
✔ More flexible terms than traditional lenders.
✔ Avoids bank fees and lengthy approval processes.
Cons:
✖ Usually higher interest rates.
✖ Shorter loan terms, requiring full payment in a few years.
✖ Limited availability—only works if the seller agrees to this financing method.
6. Tap into Your Retirement Savings (With Caution)
Some buyers use their 401(k) or IRA to fund a second home down payment. However, this should be a last resort due to penalties and long-term financial consequences.
Options:
- 401(k) Loan: Borrow from your own retirement funds without penalty (must repay with interest).
- IRA Withdrawal: First-time homebuyers may withdraw up to $10,000 penalty-free.
Pros:
✔ Quick access to cash for a down payment.
✔ No need to qualify for additional loans.
✔ No impact on your credit score.
Cons:
✖ Early withdrawal penalties (except for first-time homebuyers using an IRA).
✖ Reduces retirement savings, affecting your future financial security.
✖ Must repay 401(k) loans within 5 years, or they are treated as withdrawals (subject to taxes & penalties).
What credit score is needed to buy a house with no money down?
The credit score requirement varies depending on the loan type. For a VA or USDA loan, you typically need a credit score of at least 620, though some lenders may approve lower scores. For conventional loans with no or low down payment options, a score of at least 680-700 is generally preferred to qualify for favorable terms.
How much do you need for a down payment on a 2nd home?
Most lenders require a minimum of 10% down for a second home, though some programs may allow lower down payments if you qualify for special financing options such as home equity loans, seller financing, or assumable mortgages. A 20% down payment is ideal to avoid private mortgage insurance (PMI) and secure the best interest rates.
Buying a second home with no down payment is possible—but choosing the right strategy depends on your financial situation and long-term goals. Here’s a quick summary:
| Method | Best For | Risk Level |
| Home Equity Loan/HELOC | Homeowners with strong equity | Medium |
| VA Loan | Military members & veterans | Low |
| Assumable Mortgage | Buyers seeking lower interest rates | Low |
| Rent-to-Own | Buyers needing time to save | Medium |
| Seller Financing | Buyers struggling to qualify for traditional loans | High |
| Retirement Savings | Buyers with few other options | High |
Before making a decision, consider consulting a mortgage specialist or financial advisor to determine the best no-down-payment option for your needs.
