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Buy A Home With Less Than 10 Percent Down

Gina Pogol
The Mortgage Reports contributor

Newsflash: You DON’T Need 20, 15, or 10 Percent Down To Buy A House

A recent survey by the National Association of Realtors (NAR) shocked many in the real estate and mortgage industries.

It found that across all income brackets and education levels, fewer than one-fifth of consumers knew they could buy a home with less than ten percent down payment.

Clearly, the industry can improve its customer education.

For the record, you can buy a house with five percent down; you can also buy with three percent down and even nothing down at all.

Here’s how.

Verify your new rate (Nov 22nd, 2019)

Buy A Home: Low And No Down Payment Options

There are many programs that allow down payments of less than ten percent, and often, the required down payment may be borrowed or gifted from an approved source.

This guide lists mortgages by minimum down payment, in descending order, and covers their main features and eligibility guidelines.

Low Down Payment Mortgage Programs Chart

* Private mortgage insurance paid to private insurers. PMI terminates when loan is paid to 78 percent loan-to-value. ** Mortgage insurance premiums paid to the government. Monthly MIP remains for the life of the loan.

The chart makes it clear: there is no shortage of low-down payment mortgages for today’s home buyer.

Verify your new rate (Nov 22nd, 2019)

5 Percent Down: Non-Conforming (Jumbo) Mortgages

Non-conforming or jumbo loans are private (non-government) mortgages that do not conform to the requirements established by Fannie Mae or Freddie Mac (usually because their amounts are too high).

Their guidelines are set by the individual lenders or investors offering them.

These 95 percent “jumbos” are harder to find, and online sources can be helpful.

While non-conforming lender guidelines may be all over the place, most non-conforming loans with down payments under 20 percent involve mortgage insurance, and mortgage insurance requirements are fairly uniform.

Typically, mortgage insurers allow five percent down on loans up to $650,000 with a minimum FICO of 660 – 700 and a maximum debt-to-income (DTI) ratio of 45 percent.

Qualified medical professionals with 720+ FICO scores and a DTI at or below 43 percent may finance up to $850,000.

5 Percent Down: Conforming Home Loans

Government-sponsored enterprises Fannie Mae and Freddie Mac offer 95 percent home loans that don’t require you to be a first-time buyer or meet income limits to be eligible.

Mortgage insurance is required, and loan sizes are limited. Limits depend on local housing costs and range from $$484,350 to $620,200 for a single family home (up to $954,225 in higher-cost areas of Alaska, Hawaii, Guam and the US Virgin Islands).

Minimum credit scores for loans with less than 25 percent down are 680 if your DTI is 36 percent or lower, and 700 if it’s between 36 and 45 percent.

Verify your new rate (Nov 22nd, 2019)

3.5 Percent Down: FHA Home Loans

FHA mortgages are insured by the federal government, but underwritten and funded by private mortgage lenders.

This program requires a 1.75 percent upfront premium (which can be added to the mortgage amount) and an annual mortgage premium (0.85 percent for most loans).

FHA mortgage amounts are subject to limits established by the federal government. For a single family home, limits range between $275,665 and $636,150, depending on local housing costs.

FHA borrowers can buy a home with FICOs as low as 580 for 96.5 percent loans. Maximum DTI ratios range from 43 to 50 percent, depending on the strength of the application.

However, many FHA lenders set minimum FICOs between 600 and 640, so ask lenders if you’re concerned about this.

Verify your new rate (Nov 22nd, 2019)

3 Percent Down: Standard 97% Conforming Mortgages

These loans are offered by Fannie Mae and Freddie Mac to eligible homebuyers. Borrowers must also qualify for private mortgage insurance.

To get 97 percent financing, buyers (at least one must be a first-timer) must purchase a non-manufactured primary residence with a fixed-rate loan, and the application must be underwritten electronically. The minimum credit score is 620, and the maximum DTI is 36 to 45 percent, depending on the strength of the file.

Loans $484,350 and under qualify for three percent downpayments; higher balances require five percent.

HomeReady and Home Possible

HomeReady™ and Home Possible® are also conforming mortgages, but they are special programs limited to applicants with low-to-moderate incomes, or those who buy a home in low-income census tracts or disaster areas.

These 97 percent loans come with discounted mortgage insurance premiums, fewer surcharges and flexible underwriting.

Eligible applicants are not required to be first-time buyers.

In most cases, applicants’ income cannot exceed 100 percent of the Area Median Income, and at least one borrower must complete approved homebuyer education.

HomeReady™ and Home Possible® programs impose the same loan size limits as standard conforming loans. Both programs are very similar, but there are minor differences in underwriting and eligibility.

Verify your new rate (Nov 22nd, 2019)

VA Home Loans

VA home loans for active military members and veterans have no down payment requirement.

These loans are insured by the federal government, and instead of mortgage insurance premiums, borrowers pay a one-time, upfront funding fee, which can be included in the loan amount.

This fee is 2.15 percent if you’re a first-time regular military or veteran user with no down payment (2.40 percent if you’re in the Guard or Reserves).

Borrowers can choose a fixed or adjustable-rate mortgage. The VA dos not set a minimum credit score; however, many lenders do. If that’s a concern, ask lenders when comparing mortgage quotes.

The VA does not set a maximum DTI; however, lenders are required to justify any approval with a DTI exceeding 41 percent.

The VA does not set loan amount limits. However, it does restrict the amount it will guarantee. In most of the country, you can buy a $484,350 property with nothing down, and in higher-priced areas, that amount is higher.

USDA Home Loans

Like VA and FHA mortgages, USDA loans are government-backed. These loans help low- to moderate-income borrowers buy a home in designated rural areas.

Like the FHA program, USDA loans require both upfront and annual insurance.

Unlike FHA and VA loans, the government doesn’t just guarantee the loan – for the lowest-income borrowers, the government actually lends the money at below-market rates.

Eligible applicants buying qualified properties must also meet underwriting guidelines. For USDA loans, the minimum credit score in most cases is 640, and the absolute lowest score allowable is 580.

However, lenders must justify approvals with DTIs exceeding 41 percent.

There are no loan limits for USDA loans. However, if your income is at or below the maximum for your area, and a DTI threshold applies, that indirectly restricts the amount you can borrow.

What Are Today’s Low Downpayment Mortgage Rates?

If you’re not sure whether you can qualify for a low down payment mortgage, start the eligibility check here. Eligibility requests come with no obligation, and no social security number is required to start.

No one is eligible for every program, but many are surprised to find out the do qualify, and don’t even need a large down payment.

Verify your new rate (Nov 22nd, 2019)