You could land a home for as little as 3% or even zero down. But you may have to dig a little deeper to find these loans, and you’ll still need to cover closing costs and other fees. We explore your options when it comes to low- or no-down-payment mortgages.
Yes. There are low- or 0%-payment mortgage options available for eligible homebuyers that can save you money up front, including:
It depends on your situation. Let’s say you have an average credit score and want a $300,000 mortgage. If you were required to put down 20%, you’d have to come up with $60,000. But if you qualify for an FHA loan, you’d only need 3.5% down, or $10,500.
With that in mind, let’s take a closer look at each type of low-down-payment loan and their requirements.
Before applying for a low- or no-money-down loan, get familiar with the nuances of the different types available to you.
FHA loans are guaranteed by the Federal Housing Administration and issued by approved lenders. FHA loans are popular with first-time homebuyers and those with lower credit scores due to their more lenient lending criteria compared to other types of loans.
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VA loans are backed by the US Department of Veterans Affairs and available to qualifying veterans, active-duty service members, members of the National Guard and Reserves and their families. VA loans offer up to 100% financing with no down payment or PMI required.
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Backed by the US Department of Agriculture, USDA loans are a no-down-payment mortgage option for homes in certain rural areas as determined by the USDA. These loans are designed for first-time homebuyers.
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A conventional loan is a home loan that’s not backed by the government. It may be harder to qualify for a conventional loan than a government-backed loan. But with a conventional loan, there’s no upfront mortgage fee and the monthly insurance payments are generally cheaper.
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The HomeReady Mortgage by Fannie Mae and Home Possible Mortgage by Freddie Mac are both mortgage loan products designed for low- to moderate-income borrowers. With these mortgages, funds for your down payment can come from flexible sources, including gifts, grants and employer-assistance programs — which means you don’t need to provide any personal funds yourself.
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Area median income, or AMI, is a calculation from the US Department of Housing and Urban Development, or HUD, that determines the median area income of households in a specific region. AMI is used to determine borrower eligibility for low-income housing programs nationwide, like HomeReady and Home Possible. If you’re trying to qualify for a loan with an AMI limit, your income can’t exceed the AMI requirements set by the lender.
While putting less money down can help move you into a house sooner, in most cases you’ll have to pay PMI (private mortgage insurance) if your down payment is less than 20%.
PMI can cost up to 1% of your total loan amount each year — which can add up to several thousand dollars annually. That said, every lender sets its own rules, which means you could find one that accepts a lower down payment without requiring PMI, such as the PNC Bank Community Loan or the Navy Federal Credit Union’s Homebuyers Choice Loan.
But keep in mind that due to the higher financing requirements of low-down-payment loans, you may end up paying a higher interest rate and making bigger overall payments, which can eat into your monthly budget.
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If a 3% down payment is a hurdle, consider these options:
If you’re ready to buy a home but your savings account is slim, compare multiple lenders to find one that fits your needs. Be sure to ask plenty of questions and to fully understand the terms, conditions, insurance requirements and any additional fees of your low-down-payment mortgage.
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