Low Down Payment Home Loans For First-Time And Repeat Buyers
The biggest barrier to homeownership today is the mortgage down payment. But it doesn’t have to be.
According to the National Association of Realtors, 87% of first-time buyers think they need 10% or more down to buy a home. That’s simply false.
In fact, the average down payment for first time buyers today is just 6%. And, a number of programs require no down payment at all.
If you’re “stuck” trying to raise enough down payment money, you must read this article.
Low And No Down Payment Loan Options
From zero down home loans to 10% down, there are many widely available loan options to choose from. All the loans mentioned are available from most lenders in the U.S. Explore all the no and low down payment mortgage options below.
FHA Home Loan
The FHA loan is one of the most popular options due to its lenient requirements.
Down payment required: 3.5%. However, 100% of the down payment can be a financial gift from a relative or approved non-profit.
Eligibility: U.S. citizens and permanent residents are eligible for an FHA loan. You do not have to be a first-time home buyer to qualify.
Credit: This is where FHA loans shine. You don’t need perfect credit or anywhere near to qualify. Some lenders approve FHA loans to borrowers with FICO scores down to 580. Some lenders may require a 620 score, though.
Who is this loan good for? About 40% of home buyers under 37 use FHA, but plenty of older buyers choose it, too. This loan is best for those who don’t want to put a lot down, but still want great rates and flexible credit requirements.
VA Home Loan
The VA home loan is a zero down mortgage option for home buyers with current or former military service. It’s often the top choice for for those eligible because it offers 100% financing and does not require great credit.
Eligibility: Eligibility is based on current or former military service. Required service requirement is typically 90 days if currently serving, or two years on active duty if separated from service.
Those in the Reserves or National Guard are eligible after six years of service.
Credit: Required FICO scores are usually 620 and above, although some lenders will allow lower credit scores. VA does not officially publish a minimum score for the program.
Who is this loan good for? The VA loan option should be the first loan type that military veterans consider. With no monthly mortgage insurance, lenient credit requirements, and low rates, eligible home buyers are often surprised they can buy a home – and with zero down, too.
USDA Home Loan
Also known as the Rural Development (RD) or Rural Housing loan, the USDA loan offers 100% financing, a good zero down mortgage option to those buying in non-urban areas.
Eligibility: Home buyers purchasing in suburban and rural areas should check their area’s USDA eligibility. About 97% of U.S. land mass is eligible, and suburban neighborhoods across the U.S.
Credit: Credit score minimums are low for a USDA loan. You can receive a streamlined approval with a score above 600. For applicants with lower scores, there may be additional paperwork requirements, but your application will still be considered.
Who is this loan good for? Anyone looking outside of a downtown core or major metro should consider a USDA loan. With no money down, low rates, and lower fees than FHA, the affordability of USDA is almost unmatched in the mortgage market.
About Using Gift Funds
Cash gifts can be used for a down payment on a home. Typically, gifts must come from a family member or approved non-profit or down payment assistance program. Interested parties such as the real estate agent, seller, or mortgage broker may not contribute gift funds.
Additionally, when you’re receiving a cash gift, you’ll want to make sure you follow a few procedures.
For example, make sure the gift is made using a personal check, a cashier’s check, or a wire; and keep paper records of the gift, including photocopies of the checks and of your deposit to the bank. Also, make sure that your deposit matches the amount of the gift exactly.
Your lender will also want to verify that the gift is actually a gift and not a loan-in-disguise. Cash gifts do not require repayment.
Sources Of Down Payment
A down payment can be funded multiple ways, and your lender will often be flexible. Some of the more common ways to fund a down payment is to use your savings or checking account; or, for repeat buyers, the proceeds from the sale of your existing home.
However, there are other ways to fund a down payment, too. For example, home buyers can receive a cash gift for their down payment or can borrow from their 401k or IRA (although that’s not always wise).
Regardless of from where you fund your down payment, though, make sure to keep a paper trail. Without a clear account of the source of your funds, a mortgage lender may not allow its use.
How Do I Check My Low Down Payment Eligibility?
You might be surprised at what you can qualify for, even if you have no money down. Get an eligibility check today. Even if you’ve been turned down before, lenders are loosening guidelines and you might be approved.