Low down payment mortgages
Low Down Payment Mortgages
Do I need to put 20% down when buying a home?
There's a myth that you need to have a 20% down-payment in order to qualify for a mortgage. With the ever increasing prices of homes, 20% can be a LOT of money and for the average American it's tough to save up 20% of even an average-priced home. These days, a 20% down payment can amount to $80,000 and more easily, especially since the average single family home costs over $400K. As fast as home prices have been rising, it seems that by the time you reach your savings goal of 20%, the home prices have risen and the "20%" that you thought you saved is no longer 20%!
Low down payment mortgage programs to the rescue!
Thankfully, there are several loan programs out there that allow you to put down as little as 3%. With certain special loan programs, you're not required to make any down payment at all if you are eligible! We'll cover the details a bit later, but the VA (Department of Veterans Affairs) and USDA (Department of Agriculture) both have special no-down-payment loan programs for qualifying borrowers. Below is a snapshot of the various low-down-payment and no-down-payment programs available:
3% down payment programs:
- HomeReady® by Fannie Mae
- Home Possible® by Freddie Mac
3.5% down payment programs:
No-down-payment programs:
- USDA Loans
- VA Loans
3% Down Payment Mortgage Programs
Home Possible® by Freddie Mac
Most lenders offer the Home Possible loan by Freddie Mac. With Home Possible®, the downpayment can be as little as just 3%. For example, on a $500,000 mortgage loan, a 3% down payment would be $15,000. This low down payment feature makes it possible for more people to get into a home! See if your income is below the limit in your area, to become eligible for the Home Possible loan.
There is one important restriction to be eligible, however: Your income can't be over 80% eighty-percent of the median income in the area (the "AMI - Area Median Income"). The median income varies by county and in higher cost areas, your income could be pretty high and you might still be eligible. The way to find out for sure is to go to Freddie Mac's Income and Property Eligibility Tool and enter your address to see if your income is within the limits for your area.
HomeReady® by Fannie Mae
Like Home Possible, Fannie Mae's HomeReady loan program is available through most lenders. The HomeReady® program also helps buyers save by offering flexible loan terms including as little as 3% down on a mortgage and a credit score requirement as low as 620. As with Freddie Mac's Home Possible, the HomeReady program also has income limits in order to qualify. You can't make over 80% of the area median income to qualify for a HomeReady loan.
3.5% Down Payment Mortgage Programs from FHA
The Basic Home Mortgage Loan from FHA
Many lenders offer FHA loans (Federal Housing Authority insured loans). The Basic Home Mortgage Loan, also called the FHA 203b loan, is a type of mortgage loan insured by FHA that requires as little as 3.5% down payment. To be eligible, you need to be an occupant in the house that you're buying, and it needs to be your primary residence. What's really great about the FHA 203b loan is that it is possible to be eligible even if your credit score isn't perfect. The upper 500s is a good starting point, though technically it could be as low as a 500 credit score.
Zero 0% Down Payment with a VA Loan - for Veterans and Active-Duty Homebuyers
VA loans
There's a wonderful mortgage program offered by the US Department of Veterans Affairs (the VA) for active duty service members, veterans, and surviving spouses get a loan for a home purchase. Because the VA guarantees these loans, you can often get into a mortgage with no down payment as well as favorable terms. There is, however, something called a "funding fee" which you can either pay in full at closing, or finance into the loan and pay it over time.
No-Down-Payment with a USDA Loan in rural areas
USDA loans
The U.S. Department of Agriculture (USDA) has a Single Family Housing program through its Rural Development mission that features Single Family Housing Direct Loans with no money down in eligible rural areas. These also support low to very low income households.