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Getting a Home Loan With Low or No Down Payment

By Bill Gassett | July 20, 2022

Saving for a down payment was always difficult for first-time buyers, but the recent increase in home prices has made things much more challenging. Finding a sizable down payment on a house of 10% or 20% can be daunting, but there are other options.

Buyers do have a low down payment choice from federal programs, and there are assistance programs too. For some buyers, there might even be a no down payment home loan available.

You'll be surprised to know the average down payment on a house is much lower than you think.

Maximum Real Estate Exposure shares some interesting figures when it comes to average down payment amounts. Let’s look at the options if you want to buy a home but don’t have the money for a large down payment.

FHA Loans

The Federal Housing Administration regulates and backs the FHA Loans program. These government-insured loans allow home buyers low down payments of just 3.5%.

Even if you don’t have the best credit score, you could still qualify. Though, you will need to pay private mortgage insurance with down payments of less than 20%, increasing your monthly outgoings.

One of the reasons FHA mortgages are so popular is their lower credit scoring requirements than other loan programs.

Fannie Mae and Freddie Mac

Fannie and Freddie have programs with down payments of 3%. These mortgage companies were created by Congress to make sure home loans were more easily available to qualified home buyers.

Both organizations offer two alternatives each. Fannie Mae has their HomeReady and Standard 97 programs, with HomeOne and Home Possible programs from Freddie Mac.

These programs have different requirements, so the right one for you will depend on your situation. This might mean you need to be a first-time buyer or have a lower household income to qualify for their 3% down mortgage programs.

Mortgage insurance will be included in monthly payments with these programs. However, once you have 20% equity in the property, you can apply to have this removed. If the value of your home has increased, this could happen sooner than you might expect.

USDA Loans

The U.S. Department of Agriculture has a program to help low-income households. Their Section 502 Direct Loan Program generally has no down payment requirement to assist low and very low-income borrowers.

This type of mortgage can be used, not only, to buy homes in rural areas, but also for renovations, new constructions, and relocating a house. Money from this loan can be spent on a land purchase, and for connecting utilities.

Qualification for this loan will be different depending on your location. What is considered low income will vary between regions in states. To qualify, the home needs to be the primary residence and can’t be larger than 2,000 square feet.

A successful applicant will often benefit from lower interest rates compared to other loans, and this can be reduced further with payment assistance. Payment assistance can lower the interest rate to just 1% for qualifying borrowers.

The repayment period can also be extended for very low-income households. This could mean repayment over 38 years, instead of the usual 30 years.

VA Loans

If you are a veteran or currently serving, the Department of Veterans Affairs offers no down payment home loans. This isn’t provided directly, instead, they set rules and terms for lenders.

Along with zero down, it offers lower interest rates and closing costs. Though they don’t require private mortgage insurance, there are other similar charges, but you can expect lower overall monthly payments compared to other loans.

Lenders that offer this type of mortgage can provide better terms because the VA guarantees part of the loan.

And this isn’t only a one-time deal, you can benefit from this type of mortgage when you move again.

The VA also offers Native American Direct Loans, to help Native American veterans buy, renovate, or construct a home. This home can be on Federal Trust Land, and they offer reduced interest rates as well as the other benefits.

Down Payment Assistance

The U.S. Department of Housing and Urban Development funds down payment assistance programs in every state. These programs are operated by nonprofits, certain banks, and housing finance agencies.

They allow lower-income buyers to qualify for assistance if they haven’t owned a home in the last three years, as well as other requirements.

If you are a lower-income and a first-time buyer, there are also some national organizations that might help. Habitat for Humanity and NeighborWorks are two nonprofits that offer this.

If you work in healthcare or teach, there are more options. The Nurse Next Door program provides grants and down payment assistance, and Teacher Next Door offers similar benefits for that profession.

Final Thoughts

The minimum down payment to purchase a home is a lot lower than most people expect. The golden rule of having twenty percent down is nothing more than a myth.

Coming up with a twenty percent down payment is more of a luxury than anything else. By having twenty percent of more to put down, you'll avoid the private mortgage insurance payments which can add up to quite a bit of money.

Over the last few years home values have skyrocketed upwards. If you bought a home in the last few years, it will make sense to check on your equity. That PMI payment may no longer be necessary.

Bill Gassett is an authority in the real estate industry with 38 years of experience. Bill is well respected for his informative articles for buyers, sellers, and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, the National Association of Realtors, Inman News, Newsbreak, Credit Sesame, Realty Biz News, and his own authoritative resource, Maximum Real Estate Exposure. He has been on of the top RE/MAX agents in New England over the last two decades.
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