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Low Down Payment Loans for First Time Buyers

Putting a down payment of 20% is not necessary to buy your home. First-time buyers have many options to purchasing a home without a large down payment.

Some people sell a property and use proceeds from this sale as a down payment on their next property. For these people, coming up with a down payment isn’t difficult. As a first-time home buyer, you don’t have equity from a previous home, so it might take longer to come up with enough cash for a home purchase.

The good news is that lack of a down payment doesn’t have to delay your goal of home ownership. One myth is that you need a 20% down payment to purchase a home. But the truth is, you might be eligible for a no money down mortgage, or at the very least, a low down payment mortgage.

FINANCING YOUR FIRST HOME

Get a No Money Down VA Home Loan

If you’re a veteran, a current service member or the eligible spouse of a service member, there’s a good chance that you qualify for a zero down VA loan. This loan option is guaranteed by the Department of Veterans Affairs. If you’re approved, you can purchase your first home with no money down and no private mortgage insurance. You might be able to roll your closing costs into the loan, too, which can reduce your out-of-pocket expense. There’s no minimum credit score required for a VA loan, but you typically need a credit score between 620 and 640, depending on the mortgage lender.

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Unsure of the best loan program?

Our team of loan officers can help you find the ideal loan program. Whether it's down payment, credit, or budgeting stopping you from buying, our loan experts can help you choose the right loan for your goals.

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BUYING IN A RURAL AREA?

Get a No Money Down USDA Loan

Another zero down payment option is a USDA loan guaranteed by the US Department of Agriculture. These loans also feature no mortgage insurance, but you will pay a 1% upfront loan fee as part of your closing costs. USDA loans accommodate moderate-income families, so you can’t earn more than 115% of the median income for your area.

To qualify for this mortgage program, you must purchase a property in an eligible rural area. But this doesn’t mean you have to live in an isolated area. Some suburban communities on the outskirts of metropolitan areas qualify as “rural.” Homes in these areas are eligible for USDA financing.

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Low Down Payment Mortgage Loans

If you’re not eligible for a no money down mortgage, a low down payment mortgage is the next best thing. These loan programs also put home ownership within reach since you don't need as much cash out-of-pocket. Typically, these mortgage loans require as little as 3% to 5% down.

FHA home loans

FHA mortgages are backed by the Federal Housing Administration. These loans only require 3.5% down, based on the home's purchase price. You can get approved with a FICO credit score as low as 580.

Conventional home loans

Conventional loans offers several low down payment options, including a standard conventional loan that requires 5% down. As far as conventional loans that only require 3% down, one option is the HomeReady program by Fannie Mae, and the Home Possible program by Freddie Mac. There’s also the Conventional 97 home loan. Conventional loans with 3% down typically have income restrictions, and some programs are only available to first-time home buyers.

Disadvantages of a Low Down Payment Mortgage

The drawback to a low down payment mortgage is that you’ll pay private mortgage insurance (PMI). This insurance protects the mortgage lender in the event of default. With a conventional loan, lenders remove (PMI) once a property has 20% equity. If you get a FHA home loan with less than 10% down, mortgage insurance is for the life of the loan. If you get an FHA loan with at least 10% down, you’ll only pay mortgage insurance for the first 11 years.

How to Apply for a No or Low Down Payment Mortgage

A zero down payment or low down payment mortgage can put home ownership within reach and help you purchase before home prices and mortgage interest rates increase. To learn more about home loan programs and down payment assistance programs available to you, speak with one of our experienced loan experts today. Give us a call and we’ll connect you with a loan officer in your area.

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