How To Get a Low Down Payment Mortgage

Are you wondering how to get a low down payment mortgage? Here is all you need to know about low-down payment mortgages and what goes into them. 

Saving for a down payment can be one of the hardest things people deal with when it comes to homeownership. Discovering how to buy a house with little to no money down may seem impossible, but it is possible, and there are many things you can consider when you are a first-time homebuyer. 

There are some circumstances where you can qualify for a no-down payment mortgage, but if you are not eligible for those, it may be easier to qualify for a low-down-payment mortgage. These mortgages include FHA Loans, insured by the Federal Housing Administration, as well as some conventional loans. 

Many different loans and programs, especially for first-time homeowners, help you get lower down mortgage payments, making it more affordable and accessible to buy a home. If you need any financial help, make sure to contact a professional to find out what you can qualify for. 

Here is all you need to know about getting low-down-payment mortgages.

1. Low Down Payment Mortgage

There are many options for first-time home buyers for loans with zero down. However, not everyone can qualify for those. There are several loan programs available that offer low down payment mortgage options, making homeownership more accessible for many Americans.

These programs are here to help you secure finances for your home purchase while minimizing initial out-of-pocket expenses. Of course, low—and no-down-payment home loans have many pros and cons. People do this mainly to reach the ideal of homeownership more easily. However, these mortgages do include extra expenses and start you with less equity. 

Conventional 97 Loan Program

The Conventional 97 Loan Program allows first-time home buyers to purchase a home with just a 3% down payment. This type of loan is backed by Fannie Mae and Freddie Mac and offers competitive interest rates. To qualify:

• Minimum credit score of 620
• Debt-to-income ratio of 50% or less

Keep in mind that if you make a down payment of less than 20%, you will be required to pay private mortgage insurance (PMI) until you build sufficient home equity. 

HomeReady Loan Program

The HomeReady Loan Program is offered by Fannie Mae and is designed to help low-income and first-time home buyers. This program allows for a down payment as low as 3% and offers flexible credit requirements. Your income must be at or below 80% of the area's median income to qualify. This program also allows you to use gifts, grants, and other funds for the down payment and closing costs. 

Home Possible Loan Program

Similar to HomeReady, Freddie Mac's Home Possible Loan offers a 3% down payment option for low-income and first-time home buyers. This program requires a minimum credit score of 660 and allows for flexible sources of funds for other costs. It also offers reduced mortgage insurance premiums, making the monthly payments affordable. 

FHA Loan

The Federal Housing Administration (FHA) loan program is a popular choice for first-time home buyers due to its low down payment requirement of 3.5%. The government backs FHA loans and has more lenient credit requirements than conventional loans. You need a minimum credit score of 580 and a debt-to-income ratio of 50% or less to qualify. 

2. How to Get a Mortgage with No Money Down

For many people buying their first home, saving up for a down payment can be an obstacle. However, many loan programs are available that allow eligible buyers to purchase a house with no money down. These mortgages can help first-time home buyers enter the housing market sooner with a lower upfront cost. 

USDA Loans and VA loans are the two most popular options for buyers who want to buy a house with no money down. Both are valuable to first-time home buyers and repeat buyers, but they do have specific requirements. Here are the loans and what they require. 

USDA Loans

The USDA Loan, offered by the United States Department of Agriculture, provides 100% financing for eligible home buyers. While they are often associated with rural areas, the USDA's definition of rural is broad and can include suburban neighborhoods. 

These loans are primarily used to assist low- to moderate-income home buyers, with about 97% of the U.S. land area falling under the eligibility criteria for USDA. These key requirements are:

• Zero down payment
• Minimum credit score of 640
• Debt-to-income ratio below 41%
• Stable two-year employment history
• Income not exceeding 115% of the area median income
• Purchasing a single-family primary residence in an eligible area

Other than offering no down payment, another advantage of USDA loans is that they often have lower mortgage rates compared to similar low or no down payment options. However, be aware that they do require an upfront funding fee as well as annual fees that are paid as part of your monthly mortgage payment. 

VA Loans

The VA Loan is a zero-down mortgage available to members of the U.S. military, veterans, and surviving spouses. The U.S. Department of Veterans Affairs guarantees VA loans and helps lenders offer favorable rates and more lenient qualification criteria. 

Most veterans, active duty members, and even honorably discharged service personnel are eligible for the VA program. Home buyers who have spent at least six years in the Reserves or National Guard are also eligible. Below are the VA loan requirements. 

• Certificate of Eligibility from the VA
• 0% down payment
• Credit score of 580-620
• Debt-to-income ratio below 41%
• Two-year employment history
• Buy a 1- to 4-unit primary residence

3. Down Payment Assistance

If you are eligible for a loan, but you can not afford the down payment, you are eligible for any down payment assistance. Grants, loans, and assistance programs are available all over to help first-time home buyers afford a down payment and all the costs that go into buying a home. If you meet certain eligibility requirements, you may qualify for these types of assistance:

Grants

Grants are available in many areas to cover the cost of your down payment or even closing costs. Unlike a loan, grants provide money to eligible buyers that do not need to be paid back. 

Forgivable Loans

Forgivable loans, also known as a second mortgage down payment assistance programs, are low to no-interest loans that you may not have to pay back if you live in the office for a certain period of time.  

Deferred Payment Loans

Deferred Payment Loans are low or no-interest loans that offer a fixed rate to cover down payments and closing costs. Payments are usually not due unless you sell or refinance your home. 

4. What are Current Mortgage Rates

Mortgage interest rates were mostly higher compared to a week ago, but according to Bankrate, the average rates for 30-year fixed, 15-year fixed, and jumbo mortgages increased, while 5/1 ARM rates fell. 

The average rate for a 30-year fixed mortgage today, in May 2024, is 7.08%, which is up four basis points. Last month, the average rate was higher, 7.35%. At the current average rate, you will pay principal and interest of $670.68 for every $100,000 you borrow. That is an increase from what you would have paid last month. 

The average 15-year fixed mortgage rate is about 6.54%, which is up seven basis points over the last week. Monthly payments for this mortgage at that rate will cost you about $873 per $100,000 borrowed. The average rate on a 5/1 adjustable mortgage is about 6.61%, which is down two basis points from last week. 

Mortgage rates adjust slowly, but based on the data, they will rise above the historical lows of recent years. If you are shopping for a mortgage, you may want to lock your rate when you find an affordable loan for you. According to Freddie Mac's research, you should get at least three loan offers to help you find the best year. 

However, keep in mind that the decision to buy a home isn't based on market shifts but also on what you need. It might make sense to take a higher rate now and refinance later, depending on your situation. This way, you can build equity rather than wait for rates and prices to be more favorable. 

5. How to Choose Best Mortgage For You

Finding the best lenders for first-time home buyer loans with zero down or low-payment mortgages can be challenging. You must explore state and local programs and gather quotes from lenders specializing in government-backed loans. 

With so many attractive mortgage loan options available, it can be hard to decide which type of mortgage you should apply for. When you carefully consider your needs and seek professional advice, you will be able to find the right one. Here are things you should consider when you are searching. 

 

1. Determine how much house you can comfortably afford
2. Get a firm understanding of how mortgage rates affect your immediate and long-term financial situation
3. Talk to a professional

Your down payment is just one thing you must worry about when buying a home. While the amount you pay upfront impacts your payments and the final cost of your home, it is not the only thing you need to consider when applying for a home loan. 

It is a common misconception that you must have a 20% down payment before you can buy a house. While it is true that 20% gives you certain advantages, it is not necessary. The amount of money you spend on a down payment varies depending on the person and situation, so it is helpful to know how much you can put down and use resources. 

Methodology

We gathered information from various sources and utilized our data to create this guide on how to get a low down payment mortgage. We consolidated a range of data to help you learn how to get a low down payment mortgage.

• NerdWallet
• Mortgage Reports
• USDA Loan
• Fannie Mae Programs

The above are a few sources we used to gather most of our information about how to get a low down payment mortgage. 

FAQS

What is the lowest down payment for a mortgage?

You can get a conventional mortgage with a 3% down payment, but keep in mind that with anything less than 20%, you will need to pay mortgage insurance. Making a larger down payment will get you lower interest rates, too.

What if I can't afford a 20% down payment?

If you can not afford a 20% down payment, a smaller down payment means a more expensive mortgage over the long term. With less than 20%, you will have a bigger loan and higher monthly payments. However, remember that many financial assistance programs can help if you qualify. 

What credit score do I need to buy a house with no money down?

A USDA loan is meant for low to moderate-income homebuyers and does not require a down payment and doesn't have a set minimum credit score requirement, but most lenders will want to borrow to have at least a 640. 

How To Get a Low Down Payment Mortgage - The Bottom Line

The down payment dilemma is a common problem for many first-time home buyers who have the income to afford a mortgage but not the savings for a traditional home loan. Several programs offer low-down-payment options for these circumstances. 

Saving for a down payment can be one of the toughest challenges when it comes to buying a home. However, it's possible to buy a house with little to no money down, especially for first-time homebuyers.

Various loan programs offer low or zero-down payment options, making homeownership more achievable for many Americans. These programs help minimize initial out-of-pocket expenses and make it easier for people to secure finances for their home purchases.

If you're a first-time homebuyer and need financial assistance, it's advisable to seek help from a professional to explore the options for which you may qualify.

If you are considering moving or selling, contact us or visit our website. Our team at Raleigh Realty is here to help you with any home buying or selling needs.