There are a number of low down payment mortgage products that allow borrowers to buy a home with little to no money down. That’s a big boon, considering 40% of Americans cited affording a down payment as their greatest financial barrier to homeownership, a Country Financial group survey found.
Let’s take a look at these low- and no-down payment home loan options.
First-time home buyer loans with zero down payment
There are two types of home loans that enable first-time buyers to put zero money down on a new home: USDA loans and VA loans.
USDA loans: 0% down
A USDA loan is a mortgage program backed by the U.S. Department of Agriculture and guaranteed by the agency’s Rural Development Guaranteed Housing Loan Program. Created in the 1990s, USDA loans offer competitive interest rates and allow for down payments of as low as zero percent.
USDA loans are intended to help homebuyers in suburban or rural areas. These loans are offered to qualified home buyers in towns with a population of 20,000 or less (or 35,000 or less in special cases). About 97% of the nation’s landmass is eligible for USDA loans. You can check the USDA’s website to see if your area is eligible.
Typically, home buyers need a credit score of 640 or higher to qualify for a USDA loan. Also, your income cannot exceed your area’s median income by more than 15%. For instance, if the median salary in your town is $65,000 per year, you could qualify for a USDA loan with a salary of $74,750 or less. (15% of $65,000 = $9,750 → $65,000 + $9,750 = $74,750).
VA loans: 0% down
A VA loan is a mortgage backed by the U.S. Department of Veterans Affairs that gives active-duty service members, veterans and surviving spouses the opportunity to make a home purchase with a zero percent down payment.
Another perk: VA loan borrowers don’t have to pay private mortgage insurance (PMI), which can represent considerable savings over the life of the loan. And VA loans typically have lower interest rates than conventional mortgages.
While VA loans have no official credit score requirement, VA lenders typically require a minimum credit score of 640 — though some lenders may allow for a score as low as 620.
Pros & cons of low- and no-down-payment home loans
You can become a homeowner sooner
You’ll have little or no home equity at the beginning of homeownership
You don’t have to deplete your savings
Your monthly mortgage payment will be higher since your loan is larger
You’ll be building equity rather than paying rent
You may incur additional fees like private mortgage insurance (PMI)
You’re left with more cash on hand to cover emergency savings
A significant drop in home values could lead to you owing more than the home is worth
Low-down payment first-time home buyer loans
The following types of home loans allow for low-down payments.
FHA loan: 3.5% down
Federal Housing Administration (FHA) loans are aimed at low- and moderate-income borrowers. Down payments can be as low as 3.5%. That means on a $250,000 house, you’d need to put $8,750 down for an FHA loan. FHA loans typically require a minimum credit score of 580 — though borrowers with a score of 500 to 579 may qualify if they make a 10% down payment.
Remember though, with an FHA loan, you’ll pay a mortgage insurance premium (MIP) to offset some of the lender’s risk.
HomeReady & Home Possible loans: 3% down
Both Fannie Mae’s HomeReady and Freddie Mac’s Home Possible loan programs are low-down payment options that allow borrowers to purchase a house with as little as a 3% down payment. But they have different credit score requirements: borrowers must have at least a 620 score to qualify for a HomeReady mortgage, and at least a 660 score for Home Possible. Note that Fannie Mae and Freddie Mac both require borrowers of these loan types to complete an educational course about homeownership if they’re first-time buyers.
Conventional 97 loans: 3% down
A Conventional 97 loan allows you to put 3% down on a conventional mortgage. (The program is named for the 97% of the home value that’s financed by the lender.) You need a credit score of at least 620 to qualify, since Conventional 97 loans conform to Fannie Mae’s underwriting rules.
As with many other low-down payment mortgage loans, the downside is that you must pay private mortgage insurance (PMI) if you put less than 20% down on a conventional home loan. On average, PMI ranges from 0.58% to 1.86% of your loan amount per year, depending on your credit score and the size of your mortgage. But you can stop paying PMI once your loan balance reaches 80% of the appraised value of your home.
Piggyback loan: 10% down
A piggyback loan — also called an 80-10-10 mortgage — is when you take out a first and second mortgage for a home simultaneously. The second loan “piggybacks” on the first loan to cover a bigger percentage of the home’s purchase price. The first mortgage is for 80% of the home’s purchase price, the second loan is for a value of 10% of the price, and you make a down payment for the remaining 10%. As a result, a piggyback loan allows you to avoid paying PMI.
Benefits of private mortgage insurance (PMI)
While private mortgage insurance makes a home loan more costly, PMI allows you to qualify for a mortgage without forking over a 20% down payment. This enables you to stop renting sooner and start building equity in a home. This can be especially valuable if you live in an area with a booming real estate market, where prices are rising faster than you can save a down payment.
It’s worth mentioning that PMI premiums were tax deductible in 2021, and Congress may expand the deduction into the 2022 tax year. However, you should consult with a tax professional to see how the rules apply in your specific situation.
Low down payment mortgage options for bad credit
If you have a subpar credit history, you may still be able to qualify for a low-down payment home loan. That’s because FHA mortgages require a minimum credit score of only 500 (with a 10% down payment), while VA and USDA loans typically require a minimum credit score of 640 with zero down payment.
Remember that while many of these loan programs have minimum requirements, individual mortgage lenders set their own thresholds. That means if you are having trouble qualifying with a particular lender, you may be able to shop around.
Buy a second home with a low down payment loan
Government-backed loans, such as USDA, VA, and FHA loans, are intended to help borrowers purchase a primary residence and cannot be used for a second home. Conventional 97 loans also can’t be used to buy a second home or investment property.
Standard conventional mortgages and piggyback mortgages allow you to purchase a second home with a down payment as low as 10%.
Down payment assistance programs
For borrowers struggling to accrue the money for a down payment, many federal and state down payment assistance programs can help to bring home ownership into reach. Depending on where you live and your financial situation, you may qualify for down payment grants, reducing your out-of-pocket down payment cost. Or, you could qualify for a low- or no-interest loan toward your down payment. Many of these loans are forgiven over time, so you don’t have to repay them if you stay in the home for five to 10 years.
Low down payment mortgage FAQ
What is the minimum down payment for a mortgage?
The minimum down payment for a home loan depends on the type of mortgage you’re applying for. Minimum down payments could be zero down (USDA and VA loans), 3% down (conventional loans), or 3.5% down (FHA loans). Buyers with a little more cash can choose to put 5% or 10% down.
Are there zero-down mortgage loans?
Yes, VA loans and USDA loans allow eligible buyers to put zero money down.
Are there income limits on no-down payment mortgages?
Yes, there are income limits for no-down payment mortgages. To be eligible for a USDA loan, your income cannot exceed your area’s median income by more than 15%. VA loans don’t have official income requirements, but they typically require a debt-to-income ratio of 41% or less.
Which loan programs do not require a down payment or private mortgage insurance?
Only the VA loan requires no down payment and no private mortgage insurance. The USDA loan also allows zero down payment but comes with upfront and monthly mortgage insurance fees. Some lenders create their own proprietary mortgage programs with no down payment and/or no PMI, but these typically charge higher interest rates.
Do I have to be a first-time home buyer for a low- or no-down payment mortgage?
Generally, you don’t need to be a first-time buyer to qualify for a low- or no-down payment mortgage.
How much does a down payment lower a mortgage?
Naturally, how much you put down directly affects the size of your home loan. For instance, if you’re planning to make a 10% down payment on a $300,000 home, your mortgage would be $270,000 (90% of $300,000 = $270,000), while a 15% down payment would reduce your mortgage to $255,000 (85% of $300,000 = $255,000). A smaller loan amount will have lower monthly mortgage payments.
What is a low-down payment mortgage?
A low-down payment mortgage is any home loan that allows you to make a down payment of less than 20%. The FHA loan, Fannie Mae HomeReady loan, Freddie Mac Home Possible loan, and Conventional 97 loan are all examples of low-down-payment mortgages.
What type of mortgage has the lowest down payment?
VA and USDA loans have the lowest down payment requirements — both allow qualified borrowers to make down payments as low as zero percent. However, these programs have special eligibility requirements. Borrowers who don’t qualify for USDA or VA loans can often use a conventional loan with just 3% or 5% down.
Can I get a mortgage with 5% down?
Yes; most mortgage lenders allow you to use a conventional loan with just 5% down and no special eligibility requirements.
How low of a down payment can you put on a house?
You can put as little as zero percent down on a home if you qualify for a VA or USDA loan. If you don’t qualify for a zero-down mortgage, the lowest down payment option is typically 3%.
What credit score do I need to buy a house with no money down?
You usually need a credit score of at least 640 to qualify for a USDA loan. For a VA loan, you typically need a minimum credit score of 580.
Do you have to put a down payment on a house?
No. If you can qualify for a USDA or VA loan, you don’t have to put forth a down payment to purchase a home.
How much money do you need to put down on a second home?
You can put less than 20% down on a second home or investment property—potentially as low as 10%—depending on the type of loan you get. Note: Government-backed loans, including USDA, VA, and FHA loans, cannot be used to purchase a second home.
Do I have to put down 20% on a second home?
Typically, no. Many conventional loan lenders allow you to put as little as 10% down on a second home, but requirements can vary from lender to lender.
How hard is it to get a second mortgage?
To get approved for a second mortgage, you usually need a credit score of at least 620. Also, you typically need a debt-to-income ratio of no more than 43%, although some lenders may allow DTI ratios of up to 50%.
What does “owner financing available” mean?
When you browse properties for sale online, you may come across listing descriptions that say “owner financing available.” Owner financing is when a home seller provides you with the financing to purchase the house they are selling. This can help facilitate the transaction since closing costs are typically less with owner financing and there’s no formal loan underwriting process since no lender is involved in the sale.
Can I put less than 20% down on an investment property?
Yes. To qualify for a loan on an investment property, you typically need to make a down payment of at least 15%.
The bottom line: When is a low down payment mortgage the right choice?
A low-down-payment loan may be a good option if you’re able to afford the monthly payments of a home loan but haven’t yet accrued the savings needed for the down payment. It can also be the right choice if you want to keep more cash in the bank for emergency expenses or other investment opportunities.
Of course, you’ll make lower monthly payments with a large down payment, but a low-down payment loan can enable you to begin building equity sooner — particularly if you live in an area with a booming real estate market and rapidly increasing home prices.