Free Quote

Get Your Free Rate Quote

Today’s Common Mortgage Programs Which Don’t Require 20% Downpayment From Home Buyers

Posted November 24, 2014

Today’s Common Mortgage Programs Which Don’t Require 20% Downpayment From Home Buyers

Today's home buyers have low and no downpayment options which don't require 20% downpayment

Mortgage Rates Drop To 17-Month Low

2015 is projecting to be another strong year for U.S. housing. Home sales are rising, home supply is dropping, and prices are increasing in many cities and neighborhoods.

Furthermore, mortgage interest rates are down.

30-year mortgage rates are below 4% nationwide and have fallen to their lowest levels since early-June 2013. Many lenders now quote rates and APR in the 3s; with rates for FHA and VA loans beating rates for conventional loans.

Lower mortgage rates yield lower monthly mortgage payments for today's home buyers. However, for many buyers, it's not the monthly payment which makes homeownership difficult -- it's the prospect of putting 20% down.

The good news is that, in today's mortgage market, there are a myriad of mortgage programs requiring little or no money down.

Get an instant rate quote here.

Home Buyers Don't Need To Put 20% Down

Buyers in today's U.S. housing market don't need 20 percent down. Many believe they do. This "20 Percent Down" misbelief may have true at some point in history, but certainly not since the advent of the FHA loan, which occurred in 1934.

The likely reason why buyers believe a twenty percent downpayment is required is because, with a conventional mortgage, putting twenty percent down removes the need for private mortgage insurance. 

Private mortgage insurance is an insurance policy homeowners are required to pay in order to protect a lender in the event of default. Mortgage insurance costs vary by downpayment, state, and the borrower's credit score.

Home buyers -- especially first-time home buyers -- will sometimes delay a purchase because they don't feel as if they have enough money saved up for downpayment. And, while this should certainly be a consideration in homeownership, it should never be the only consideration.

Home affordability is not about how much money you can put down on a home. Home affordability is about whether you can afford the monthly payments that accompany owning a home.

A larger downpayment will result in a smaller loan size and, therefore, a smaller monthly mortgage payment. However, if you've depleted your life savings to make the purchase, perhaps the big downpayment was poor planning.

Financial experts call this being "house-poor". When you're house-poor, you have little money left to handle the everyday emergencies of life (and of homeowners).

Making a downpayment of less than 20% can be financially conservative, in this way.

Click for today's live rates.

FHA Mortgage : 3.5% Downpayment

The FHA mortgage is somewhat of a misnomer because the FHA doesn't actually make loans. Rather, the FHA is an insurer of loans.

The FHA publishes a series of standards for the loans it will insure. When a bank underwrites and funds a loan which meets these specific guidelines, the FHA agrees to insure that loan against loss.

FHA mortgage guidelines are famous for their liberal approach to credit scores and downpayments. The FHA will typically insure a home loan for borrowers with low credit scores so long as there's a reasonable explanation for the low FICO.

The FHA allows a downpayment of just 3.5 percent in all U.S. markets, with the exception of a few FHA approved condos.

Other traits of an FHA loan include :

  • Your downpayment may consist entirely from "gift funds"
  • Your credit score requirement is 500
  • Mortgage insurance premiums are paid upfront at closing, and monthly thereafter

Furthermore, the FHA supports homeowners who have experienced recent short sales, foreclosures or bankruptcies through the agency's Back to Work program; and will reduce its FHA mortgage insurance premiums for first-time buyers via the Homeowners Armed With Knowledge (HAWK) program. 

The FHA insures loan sizes up to $625,500 in designated "high-cost" areas nationwide. High-cost areas include Orange County, California; the Washington D.C. metro area; and, New York City's 5 boroughs.

Click to get an instant mortgage rate quote.

Conventional 97 : 3% Downpayment

Editor's Note : The Conventional 97 program was discontinued in December 2013. It may be reinstated by the Federal Home Finance Agency in early-2015. This section will not be deleted for archival purposes.

The Conventional 97 program is available from Fannie Mae. It's a 3 percent downpayment program and, for many home buyers, it's a less-expensive option as compared to an FHA loan.

Furthermore, the Conventional 97 mortgage allows for its entire three percent downpayment to come from gifted funds, so long as the gifter is related by blood or marriage; or via legal guardianship or domestic partnership; or is a fiance/fiancee.

The Conventional 97 basic qualification standards include :

  • Loan size may not exceed $417,000, even if the home is in a high-cost market.
  • The subject property must be a single-unit dwelling. No multi-unit homes are allowed.
  • The mortgage must be a fixed rate mortgage. No ARMs via the Conventional 97.

In addition, the Conventional 97 program enforces a minimum credit score on all borrowers of 680. If a gift of downpayment is accepted, though, the minimum credit score threshold rises to 740.

Editor's Note : The Conventional 97 program was discontinued in December 2013. It may be reinstated by the Federal Home Finance Agency in early-2015. This section will not be deleted for archival purposes.

VA Loan : No Money Down / 100% Financing

The VA loan is a no-money-down program available to members of the U.S. military and surviving spouses.

Guaranteed by the U.S. Department of Veteran Affairs, VA loans are similar to FHA loans in that the agency guarantees repayment to lenders making loans which means VA mortgage guidelines.

VA loan qualification are straight-forward.

In general, active duty and honorably discharged service personnel are eligible for the VA program. In addition, home buyers who have spent at least 6 years in the Reserves or National Guard are eligible, as are spouses of service members killed in the line of duty.

Some key traits of the VA loan include :

  • You may use intermittent occupancy
  • Bankruptcy and other derogatory credit do not immediately disqualify you
  • No mortgage insurance is required

VA loans also allow for loan sizes of up to $1,094,625 in high-cost areas. This can be helpful in areas such as San Francisco, California; and Honolulu, Hawaii which are home to U.S. military bases.

Click to get an instant mortgage rate quote.

USDA Mortgage : No Money Down / 100% Financing

No Money Down options exist for non-military borrowers, too. The U.S. Department of Agriculture offers a 100% mortgage. The program is formally known as a Section 502 mortgage, but, more commonly, it's called a Rural Housing Loan.

The good news about the USDA Rural Housing Loan is that it's not just a "rural loan" -- it's available to buyers in suburban neighborhoods, too. The USDA's goal is to reach "low-to-moderate income homebuyers", wherever they may be.

Many borrowers using the USDA Single Family Housing Guaranteed Loan Program make a good living and reside in neighborhoods which don't meet the traditional definition of rural.

For example, college towns including Christiansburg, Virginia; State College, Pennsylvania; and even suburbs of Columbus, Ohio meet USDA eligibility standards. So do the less-populated suburbs of some major U.S. cities.

Some key traits of the USDA loan include :

  • You may include eligible home repairs and improvements in your loan size
  • There is maximum home purchase price
  • Guarantee fee added to loan balance at closing; mortgage insurance collected monthly

Another key benefit is that USDA mortgage rates are often lower than rates for comparable, low- or no-downpayment mortgages. Financing a home via the USDA can be the lowest cost means of homeownership.

Home Buyers Get Low Mortgage Rates

Not everyone will be eligible for today's low-downpayment loans, which is okay. The next-lowest downpayment loan comes from Fannie Mae and Freddie Mac and it requires just five percent down.

See how today's low rates and low-downpayment loans fit your budget. And, consider getting a no-obligation pre-approval for your purchase. Personalized rate quotes are available online at no cost and with no social security number required to get started.

Click to compare mortgage rates.

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

3 Testimonials

Thomas D. Software Developer

As a first time home buyer, The Mortgage Reports has been the only voice that I can trust, and the expertise has been helpful.

Katrina B. Lab Technician

I look forward to reading The Mortgage Reports. Its information and updates helped me to buy my first home. Thank you!

Thaddeus C. Systems Analyst

I am an aspiring homeowner and The Mortgage Reports helps me daily. Thank you for your excellent information.

2014 Conforming & FHA Loan Limits

Mortgage loan limits for every U.S. county,
as published by Fannie Mae & Freddie Mac, and the FHA.