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Getting a mortgage with 5% down

Buy your dream home sooner without saving for a high down payment.

Saving a 20% down payment is simply unrealistic for many homebuyers. Luckily, there are numerous mortgages that require only a 5% or lower down payment. You may have to pay private mortgage insurance (PMI), but a low or no down payment mortgage can get you into the property market faster.

5 programs to buy a home with 5% or less down

If you can’t come up with a big down payment, you don’t have to give up on buying a home. There are programs available for homebuyers with less than 5% to put down on a home.

  1. FHA loan. This is usually the most popular option for low down payment mortgages. Put as little as 3.5% down with an FHA loan.
  2. VA loan. If you’re a veteran or current service member, you might be eligible for a loan with no money down at all.
  3. USDA loan. Like a VA loan, homebuyers can purchase a house with no money down. The one big catch is that you have to be willing to purchase a home in eligible rural areas.
  4. HomeReady mortgage. Backed by Fannie Mae, purchase a home with a 3% down payment if you meet specific requirements. This program is intended to help low- and middle-income buyers purchase a home.
  5. Conventional 97. This additional Fannie Mae-backed program is another option if you only have a 3% down payment.

A smaller down payment means paying more in interest

Getting a loan with such a small down payment inevitably means paying more in interest over time. The difference in interest you’ll pay over the life of the loan can be significant. Here’s an example:

Property cost: $600,000

  • 20% down payment = $120,000 (loan amount of $480,000)
  • Interest rate: 3.65%
  • Loan term: 30 years
  • Monthly payments: $2,195.81
  • Total interest payable: $310,490.12

Property cost: $600,000

  • 5% down payment = $30,000 (loan amount of $570,000)
  • Interest rate: 3.65%
  • Loan term: 30 years
  • Monthly payments: $2,607.52
  • Total interest payable: $368,707.02

You’ll likely need to pay for PMI

Most home loans require a 20% down payment. But some products have a minimum down payment of as low as 3%. This means you can forget the 20% and buy your property with a smaller down payment.
There’s only one catch. Getting a loan with less than 20% down means you’ll have to pay private mortgage insurance (PMI). This is an extra cost that protects your lender, not you, in case you can’t repay your debt. It’s a cost that adds up to thousands of dollars, especially if you’re borrowing 95% of a property’s value.
Before considering getting a loan with a 5% down payment, calculate how much PMI will add to your costs. While PMI costs can be rolled into your mortgage payments — meaning you can borrow this sum along with the money needed to buy a property, it will affect how much you can borrow.

If you don’t have 5% saved, your options are limited

It’s possible to buy a property without saving up a 20% down payment. But most lenders require at least 5% down.
In other words, they’ll lend you 95% of a property’s costs, but that 5% needs to be money you’ve saved. This is often defined as money that’s been sitting in your account for at least six months. But there are ways around this:

  • 0% down mortgage. If you can’t come up with 5% down, look into a 0% down mortgage specific lenders offer. These include VA and USDA loans, as well as state- and community-backed loan programs for low-income buyers.
  • Piggyback loan. Some lenders offer piggyback loans, which means taking out a home equity line of credit (HELOC) in addition to your primary mortgage. The funds from the HELOC can be used towards the down payment to eliminate the PMI requirement.
  • Retirement savings. Most retirement savings accounts will allow you to borrow or even withdraw money from your account for the purpose of purchasing a home if you are a first-time homebuyer.
  • Parental guarantor. If your parents own a property, they can use it as security to guarantee your mortgage. You have the option of saving 5% yourself and getting your parents to guarantee the other 15% of the down payment. This way, you can avoid PMI.
  • Selling shares or other assets. Sell off an investment and use the cash as a down payment, but you may need to keep it in your account for six months to satisfy the savings rule.
  • Cash gift or inheritance. If you receive a cash gift or inheritance, you could use this as your down payment — but again, watch out for the genuine savings rule.

How to apply

Using our comparison table, you can sort through loans with 5% down payments and read reviews of the various products and lenders. Look at the fees, flexibility and features the loans come with to get a better idea of which ones work for you.
When you’ve found a product you’re interested in, hit the See rates button and you’ll be taken to either a website or a form where you can add your details and get in touch with a mortgage expert. They’ll guide you through the application process.
To make the process easier, you’ll need to meet the following requirements:

  • Be at least 18 years of age
  • Be a permanent US resident or citizen
  • Have a good credit history
  • Have a good employment history

Once you meet this criteria, you’re ready to proceed with your application. It’s important to ensure you have the following information and documents ready:

  • Proof of identification
  • Employment details
  • Financial details

Bottom line

If you want a mortgage with lower interest rates and the most features, your best bet is to save up a 20% down payment. Unfortunately, that’s simply not realistic for everyone. Luckily, if you have good credit and are willing to pay a little extra for mortgage insurance, you can get a home with only 5% down.

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Jing Jun Ma is a tech and data expert with more than a decade of experience in digital marketing and programming. He wrangles data to make it useful for consumers facing a decision. See full bio

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