Saving a 20% down payment to get a mortgage is daunting – and it’s a myth that you need this much cash to buy a home. A range of low-down-payment mortgages and down payment assistance programs can unlock homeownership for people who lack substantial savings but can afford monthly house payments.
Caliber Home Loans of Coppell, Texas, offers mortgage products nationwide. Options include conventional, adjustable-rate, jumbo, refinancing, Federal Housing Administration, U.S. Department of Agriculture and Department of Veterans Affairs loans. Caliber has been in business since 2008, and is solely focused on home lending products.
Carrington Mortgage Services, founded in 2007, offers an array of mortgage and refinancing options to borrowers seeking conventional or government-backed loans. Its California-based parent company, Carrington Holding Co., was established in 2003 and provides a range of real estate services. Carrington Mortgage Services is based in California and also has offices in Arizona, Connecticut, Florida, Indiana and Maryland.
Pentagon Federal Credit Union, widely known as PenFed, offers borrowers access to many types of mortgages: conventional, adjustable rate, jumbo and Department of Veterans Affairs, plus refinancing loans and home equity lines of credit. The financial institution, which serves 2.5 million members, was established in 1935 and is based in McLean, Virginia.
North American Savings Bank, or NASB, is a Missouri-based bank and lender founded in 1927 that offers home mortgages nationally. NASB provides a variety of mortgage options, including conventional, Federal Housing Administration and Department of Veterans Affairs loans, and products for borrowers who might otherwise have trouble getting a mortgage.
AmeriSave Mortgage Corp. is an online lender that has been in business since 2002. It was one of the first to offer an offsite digital mortgage experience for customers. The company says it has financed more than 664,000 borrowers since it began operating. With headquarters in Atlanta, AmeriSave services loans in 49 states and Washington, D.C.
The 30-year fixed mortgage rate rose to 6.81% during the first week of 2023. Average interest rates increased across the board for fixed- and adjustable-rate home loan products, with the exception of FHA loans, which decreased slightly.
Mortgage interest rates are twice as high as they were at the beginning of 2022 and higher borrowing costs are having a tangible impact on mortgage affordability and consumer housing sentiment. Here are the current mortgage rates, without discount points unless otherwise noted, as of Jan. 5:
- 30-year fixed: 6.81% (up from 6.73% a week ago).
- 20-year fixed: 6.44% (up from 6.14% a week ago).
- 15-year fixed: 5.96% (up from 5.82% a week ago).
- 10-year fixed: 6.01% (up from 5.79% a week ago).
- 5/1 ARM: 5.49% (up from 5.42% a week ago).
- 7/1 ARM: 5.62% (up from 5.54% a week ago).
- 10/1 ARM: 6.02% (up from 5.97% a week ago).
- 30-year jumbo loans: 6.85% (up from 6.8% a week ago).
- 30-year FHA loans: 5.99% with 0.25 point (down from 6.2% a week ago).
- VA purchase loans: 6.03% with 0.07 point (up from 5.98% a week ago).
A low-down-payment mortgage is a home loan that requires you to pay less than 20% of your home’s purchase price upfront.
“Many borrowers with limited resources find these mortgages attractive because it allows them to save their remaining assets for incidentals and other unexpected expenses,” says Julienne Joseph, deputy assistant secretary at the Office of Single Family Housing at the Federal Housing Administration.
Down payment requirements for conventional loans can be as low as 3% or 5%. Government loan programs from the Department of Veterans Affairs and Department of Agriculture can go as low as 0% down, while FHA loans require at least a 3.5% down payment. You may need to meet credit, income, location and other criteria to get a loan through one of these government programs.
“We have to get over the fallacy that people need 20% down to buy a home,” says Bill Banfield, executive vice president of capital markets at Rocket Mortgage.
What Types of Mortgages Have Low Down Payments?
You can find conventional loan options for as little as 3% or 5% down. It’s possible to get a VA or USDA loan for nothing down and an FHA loan for 3.5% down.
Is a low-down-payment mortgage right for you? You might decide to apply for a loan with a down payment of less than 20% for many reasons.
Consider these pros and cons:
- You will bring less cash to closing.
- You can access homeownership more quickly.
- You can keep more savings for emergencies.
With a low down payment, you can get into a home faster than waiting to save for a large down payment. First-time homebuyers often choose low-down-payment mortgages – doing so can be helpful because they do not have equity in an existing home to put toward a purchase.
A low down payment “provides the ability for people to buy a home and begin establishing wealth by owning an asset and paying down that debt,” Banfield says.
But keep in mind that there are drawbacks as well.
- You will likely pay private mortgage insurance.
- You will have little to no equity in the home.
- You will likely pay higher interest rates.
“Keep in mind, when you get into a home for a low down payment, you’ll have little to no equity, so there are no funds to tap into for a cash-out refinance or home equity line of credit,” says Stephanie Hawley, vice president of sales at Flagstar Bank.
These options may be available once a homeowner has 15% to 20% equity. “Be prepared that it might take you five to seven years before you can tap into those options,” Hawley says.
Also, buyers need to plan for expenses other than the down payment, including closing costs such as the inspection and appraisal fees. “Someone with only 3% to put down might need to look at 0% down or down payment assistance because they’ll need to use that savings elsewhere to close on the home,” Hawley says.
Find the Mortgage That’s Right for You
To qualify for any mortgage, including one with a low down payment, you’ll need a solid credit report.
“Take a look at your credit report before meeting with lenders, and be sure you are paying bills on time,” Banfield says. “If you can pay down balances, do that. And definitely do not open up new accounts, especially when you are in the homebuying process.”
Lenders also consider factors including your income, past two years of employment and debt-to-income ratio when approving you for a mortgage.
What Credit Score Is Required to Qualify?
Your FICO score can determine the cost of your mortgage and drive mortgage insurance prices up or down. For example, conventional low-down-payment mortgages are generally for borrowers with a 620 credit score or higher, says David Battany, executive vice president of capital markets at Guild Mortgage.
The FHA’s 3.5% down mortgage is available to buyers with at least a 580 credit score. If your credit score is between 500 and 579, you’ll need to put down 10% to get an FHA mortgage.
However, some banks and other organizations offer programs for eligible low- to moderate-income buyers to assist with down payments, closing costs or both expenses.
Be sure any money you will use toward a down payment and closing costs is in one bank account, including any funds you plan to pull from investments, savings or other sources, such as gift money. “Have all of that in one account so it can be documented and is easy for someone who is not you to understand where the money will come from,” Banfield says.
Are There Income Limits for Mortgages With Low Down Payments?
Some low-down-payment mortgage programs have income limits. For instance, your qualifying income can be at most 80% of the area median income to get a Fannie Mae HomeReady Mortgage or a Freddie Mac Home Possible Mortgage.
If you’re having a tough time saving for a down payment and 20% down seems out of reach, you’re not alone – and there’s good news. You could qualify for several low-down-payment mortgage programs, depending on factors such as your credit history, household income and neighborhood.
The FHA offers a low-down-payment mortgage that allows you to put as little as 3.5% down. Borrowers can qualify with credit score requirements that are more lenient than conventional low-down-payment loans.
Your FICO score must be at least 580 to make a 3.5% down payment. For scores between 500 and 579, you’ll need a 10% down payment. Your debt-to-income ratio should be no more than 50%. However, keep in mind that requirements for FHA loans can vary depending on your lender.
The USDA offers no-down-payment direct and guaranteed loans through its Single Family Housing Programs in certain rural areas. Applicants must show an ability to manage debt and pay bills. No down payment is required, but you’ll pay an upfront guarantee fee and an annual fee. You’ll usually need a credit score of at least 640 to get a USDA-guaranteed mortgage, according to the credit bureau Experian.
The VA offers a zero-down-payment mortgage for qualifying veterans and spouses. Borrowers may need to pay a funding fee, which can be financed or paid in full at closing, Banfield says. Applicants must furnish a Certificate of Eligibility, or COE.
HomeReady by Fannie Mae
Fannie Mae offers a 3% down payment loan for low-income homebuyers. Your credit score must be at least 620 to get a HomeReady loan, and if it is 680 or higher, you could get better pricing. Credit guidelines are tougher for this loan compared with the FHA loan.
This Fannie Mae loan requires a 3% down payment but sets no income limits. Buyers need a credit score of 620 or higher for this conventional loan.
Freddie Mac Home Possible Mortgage
This loan has a down payment as low as 3%, and borrowers need less mortgage insurance coverage once they reach 10% equity. The Freddie Mac Home Possible loan is available for those with credit scores of 620 or higher.
Low-Down-Payment Bank Loans
Lenders may offer their own low-down-payment mortgages and down payment assistance programs that help homebuyers get into a loan without a 20% down payment.
“Talk to a local lender who is a licensed professional and can share knowledge about the offerings in your area,” says Ann Thompson, former specialty lending executive at Bank of America. “Meet with lending specialists at more than one bank, and ask about programs because they vary.”
Leave no stone unturned. You may be able to find down payment assistance in unconventional places.
Some employers offer down payment assistance, Thompson says. State, county and city programs may also be available to help you afford a mortgage down payment.
U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.
To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. For mortgage lenders, we take into account each company’s customer service ratings, interest rates, loan product availability, minimum down payment, minimum FICO score and online features.
The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.
To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.
To recap, here are the picks:
Best Low-Down-Payment Mortgages of January 2023
Founded in 1990 and headquartered in Mount Laurel, New Jersey, Freedom Mortgage is a full-service mortgage company. It’s the fifth-largest mortgage provider in the country and is licensed to operate in all 50 states. Freedom Mortgage offers a variety of mortgage options, including conventional loans, refinancing and first-time homebuyer friendly programs such as FHA loans.
LoanDepot is a mortgage lender that operates nationally with more than 200 branches and delivers both a digital experience and face-to-face service. The lender offers fixed- and adjustable-rate conventional mortgages, Federal Housing Administration and Department of Veterans Affairs loans, as well as refinance and renovation loans. The company was founded in 2010 and is based in Foothill Ranch, California.
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