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Low down payment mortgages for every home buyer

Tim Lucas
The Mortgage Reports editor

There’s a low down payment mortgage for almost everyone

According to a recent study, it could take 21 years for an American earning the median U.S. salary to save 20% down on a median-priced home. 

If that number shocks you, it might be time to forget the traditional “20% down” wisdom. 

In fact, you don’t need 20% down to buy a house anymore. 

There are plenty of low down payment loans for home buyers at every level. The only question is, which one is right for you? 

Verify your home buying eligibility (Nov 25th, 2020)

Low down payment loans for 2020 (Skip to…) 


Low down payment mortgage loans 

The majority of home buyers are more likely to qualify for a low down payment mortgage rather than a zero-down mortgage. 

Thanks to today’s programs, many buyers can buy a home with just 3 or 3.5% down. So let’s start with those. 

FHA: Low down payment mortgage for poor to average credit 

FHA loans allow for a 3.5 percent down payment. Insured by the Federal Housing Administration (FHA), these loans are among the flexible and forgiving for today’s home buyers.

FHA loans are typically best-suited for low-down payment buyers with average or below-average credit scores. They’re also good for buyers looking at multi-unit homes (e.g.; 2-unit homes, 3-unit homes, and 4-unit homes) as a primary residence.

FHA loans are typically best-suited for low-down payment buyers with average or below-average credit scores.

The downside? FHA loans require mortgage insurance premiums (MIP). But, in January 2017, those FHA MIP costs were reduced to help keep FHA loans affordable for buyers using the program.

Also worth noting, FHA loans are assumable. This means that a future buyer of your home can purchase your home with its FHA loan — and its mortgage rate! — still attached. 

Today’s ultra-low mortgage rates, coupled with these lenient rules, can make it extra easy to buy and sell a home using an FHA loan.  

Verify your FHA loan eligibility (Nov 25th, 2020)

Home Ready/HomePossible: For lower income 

The HomeReady mortgage is a low down payment loan available via Fannie Mae. Home Possible is its counterpart from Freddie Mac. 

These programs allow for 3% down, grants access to below-market mortgage rates, and offer discounted rates for private mortgage insurance.

>> Related: Freddie Mac’s Home Possible vs. Fannie Mae’s HomeReady

HomeReady also gives mortgage applicants the ability to use income from all people living in the home toward the actual mortgage approval. 

You do not need to be a low-income household to get approved. You must only own a home in a pre-approved area.

This can include parents earning pension or social security income, as examples; or children earning wage income or income of some other type. Home Possible does not offer this benefit. 

But, Home Possible does allow you to cover your whole down payment with gift money or grant money. HomeReady, on the other hand, requires you to cover at least 3% out of pocket. 

Note, the HomeReady™ program is available in low-income areas, areas with a high minority population, and areas affected by a natural disaster. 

However, you do not need to be a low-income household or living in a primarily minority area to get approved. You must only own a home in a pre-approved area.

Conventional 97: Low down payment loan for good to excellent credit 

The Conventional 97 is a special program which was recently reinstated by the Federal Housing Finance Agency (FHFA), which is the parent of both Fannie Mae and Freddie Mac.

The Conventional 97 requires a down payment of just 3 percent and, among other benefits of the program, the Conventional 97 allows a buyer’s down payment to be gifted by a third-party.

The only requirement is that the gifter has a blood or marriage relation to the buyer of the home; or is a legal guardian, domestic partner, or fiancé.

The Conventional 97 program is often more costly on a monthly-basis than a comparable FHA mortgage. However… its long-term costs are often much less.

The Conventional 97 mortgage is limited to $510,400, regardless of your local mortgage loan limit; and multi-unit homes are not allowed. The program is also restricted to fixed-rate mortgages only.

The Conventional 97 program is often more costly on a monthly-basis than a comparable FHA mortgage. 

However, because the program’s mortgage insurance can cancel in as few as 12 months from the date of purchase, its long-term costs are often much less.

Verify your 3% down loan eligibility (Nov 25th, 2020)

Good Neighbor: Low down payment mortgage for public servants

The Good Neighbor Next Door (GNND) program is a special HUD mortgage program which allows home buyers to purchase homes with just $100 down.

The program is available to members of law enforcement; firefighters or emergency medical technicians; and teachers of pre-K through 12th grade.

Buyers in the program also receive a home purchase discount of 50% — yes, 50 percent! — in exchange for agreeing to make the home your sole residence for 36 months, at minimum.

Buyers in the Good Neighbor Next Door program receive a home purchase discount of 50% — but home inventory is limited to FHA foreclosures.

Via Good Neighbor Next Door, then, a $100,000 home can be bought for $50,000.

The Good Neighbor Next Door program allows buyers to use FHA, VA, or conventional mortgage financing which helps to ensure low interest rates.

Note, the Good Neighbor Next Door program allows you up to 180 days to move into your new home, so if you plan to make repairs prior to moving day, there’s no reason whatsoever to have the house work done hastily.

Verify your low down payment eligibility (Nov 25th, 2020)

No down payment mortgage loans 

Believe it or not, there are mortgage loans that don’t require any down payment at all. 

But to get a zero-down home loan, you’ll have to meet certain eligibility requirements. 

USDA: Zero-down loans for rural home buyers 

The USDA loan is guaranteed by the U.S. Department of Agriculture and allows for 100% financing. Formally known as a “Section 502” loan, lenders sometimes call the USDA loan a “Rural Housing Loan”, which is a bit of a misnomer.

USDA loans are available in non-rural areas as well, including within many U.S. suburbs.

The big draw of the USDA loan is that its mortgage rates are among the lowest of all the low- and no- down payment mortgage programs; and its mortgage insurance requirements are quite low, too.

As compared to FHA loans, for example, USDA mortgage insurance costs are half which is why many of today’s buyers will opt for a USDA loan over an FHA one — even if they plan to put 3.5% down. 

The big draw of the USDA loan is that its mortgage rates are among the lowest of all the low- and no- down payment mortgage programs

Simply put, USDA loans are more economical.

The USDA loan program is also among the few low- and no-down payment mortgage programs which can be used to purchase manufactured homes and modular homes. 

In order to qualify for a USDA loan, the income of a home buyer’s household may not exceed the local media by more than fifteen percent. However, large households are granted certain exclusionary rights.

You can look up this year’s USDA income limits here.

Verify your USDA loan eligibility (Nov 25th, 2020)

VA: Zero-down loans for veterans 

VA loans are loans which are guaranteed by the Department of Veterans Affairs. Generally speaking, VA loans are available to active-duty members of the U.S. military; honorably-discharged service members; and many surviving spouses.

Review the complete VA mortgage eligibility guide here.

VA loans are unique among low- and no-down payment mortgage programs because they require no downpayment whatsoever and never require monthly mortgage insurance payments.

VA loans can be used for homes of any type — single-family, condo, multi-unit, and more — and are assumable by future VA home buyers. 

Furthermore, the VA loan can be used to finance energy-efficiency improvements to a home.

Interest rates for a VA loan are typically the lowest of the three “major” loan types — VA, FHA, and conventional. 

According to Ellie Mae data, VA mortgage rates beat FHA rates by about one-eighth of a percentage point, and can be as much as forty basis points (0.40%) lower than a comparable conventional loan.

Verify your VA loan eligibility (Nov 25th, 2020)

The piggyback loan (80-10-10 mortgage) 

The “piggyback” mortgage is not really a mortgage at all — it’s two mortgages, one mortgage “piggybacked” on top of another in order to borrow 90% of a home’s purchase price.

Sometimes called an “80/10/10 mortgage“, the piggyback loan has the buyer bring a 10% down payment to the closing table and, to avoid having to pay mortgage insurance, two mortgages are issued instead of one.

Piggyback Mortgages are often used by home buyers who plan to pay down or reduce the balance on their second mortgage within the first 24 months of homeownership.

The first mortgage is typically a conventional loan, issued for 80% of the home’s purchase price. The second mortgage is typically a home equity line of credit (HELOC), issued for 10%.

The second mortgage of a Piggy-Back Mortgage is often adjustable and tied to Prime Rate, which is tied to the Fed Funds Rate

When the economy is expanding, the Fed Funds Rate can jump unexpectedly, substantially raising your overall monthly housing payment. Be careful when selecting a mortgage linked to Prime Rate.

Piggyback Mortgages are often used by home buyers who plan to pay down or reduce the balance on their second mortgage within the first 24 months of homeownership.

Verify your 80-10-10 loan eligibility (Nov 25th, 2020)

FHA 203k: Construction loans with low down payment

Of all the low- and no-down payment mortgage programs available to today’s home buyers, only one can be used for home construction — the FHA 203k loan.

The 203k loan comes in two flavors. The first is the Streamlined 203k, which is used for less-extensive projects and which is limited to $35,000 in total repair costs.

The more common 203k loan is the “standard” 203k, which is used for projects which involve moving walls or replacing plumbing; or doing anything else which would prohibit you from living in the property while the work is being performed.

The standard 203k can also be used for landscaping or converting a home with more than 4 units into a 4-unit, owner-occupied home.

Another benefit: Because the 203k loan is backed by the FHA, home buyers using it remain eligible to use the FHA’s popular refinance program — the FHA Streamline Refinance. The FHA Streamline Refinance is widely-viewed as the simplest, fastest program for refinance an existing mortgage loan.

Verify your FHA 203k loan eligibility (Nov 25th, 2020)

What Are Today’s Mortgage Rates?

Today’s mortgage rates continue to hover near record lows. Couple a low mortgage rate with a low or no down payment loan, and you could be in a home sooner than you ever thought possible. 

Verify your new rate (Nov 25th, 2020)

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