Conventional wisdom holds that you need to put at least 20 percent down to buy a house. However, this is not true. In fact, it hasn’t been since at least 1934, when the passage of the National Housing Act created the Federal Housing Administration (FHA). These days, more and more homebuyers are getting into homes with little or no money down.
You could be one of them. There are down payment assistance programs available for low-income borrowers. In addition to this, there are non-conventional loan options. These can get you into a new house with as little as 3.5 percent down. If you want to obtain a mortgage with less than 20 percent down, here are your options.
The FHA doesn’t actually give loans, but it does insure FHA loans given by approved lenders. To qualify for an FHA loan with 3.5 percent down, you need a credit score of at least 580. You also need to have a debt-to-income (DTI) ratio of no more than 43 percent. To qualify with 10 percent down, you need a credit score of at least 500 and a DTI of no more than 43 percent.
You can even use gifted funds to cover a down payment on an FHA loan. It might be the best option if you’re counting on a gift from a relative or partner to cover your down payment.
Another way to get a mortgage with less than 20 percent down is through a VA loan. If you’re a military veteran, active duty service member, reservist, or the surviving spouse of a military member who was killed in combat, you can qualify for a U.S. Department of Veterans Affairs (VA) loan.
You can get a VA loan with zero down and there’s no minimum credit score, either. Although, some lenders may impose down payment and credit score requirements for VA loan borrowers
If you want to live in a rural or suburban area and you’re a low-income borrower, you may qualify for a home loan backed by the U.S. Department of Agriculture (USDA). USDA loans can cover 100 percent of the cost of your home purchase. This may mean that you can get a mortgage with less than 20 percent down in an approved.
You should check your area’s USDA loan eligibility before you write off this loan type. You may be surprised at which areas qualify as “rural” under the loan program’s definitions.
The HomeReady Mortgage program is backed by Fannie Mae, and it’s available from most lenders. You can get lower-than-market interest rates and reduced fees for private mortgage insurance (PMI). Underwriting requirements aren’t as strict as they are for a conventional mortgage. For example, you can use income from an expected tenants to qualify.
The Home Possible mortgage program from Freddie Mac can get you into a home with three percent down. You can use a non-occupant of the home as a co-borrower. Other creative underwriting principles apply, such as allowing non-traditional income sources, to help more low-income borrowers get into single-family homes.
A HomePossible mortgage is a great way to afford a mortgage with less than 20 percent down.
Good Neighbor Next Door Program
The Good Neighbor Next Door (GNND) program helps law enforcement officers, teachers, firefighters, and emergency medical personnel to buy homes in qualifying areas with as little as $100 down. The program also allows for qualifying homebuyers to get as much as 50 percent off their home purchase or mortgage. This is done through the use of a second mortgage that can be forgiven if the homebuyer meets all of the program’s requirements.
Conventional 97 Program
The Conventional 97 program makes conventional mortgages available with as little as three percent down as long as you have a credit score of at least 620. Do you need to improve your credit score because it is low? Well, you can use a Conventional 97 loan to finance up to 97 percent of the purchase price of a home in any area you want, as long as the loan meets conforming loan limits.
If you’re talking to mortgage lenders in Virginia Beach or another metro area where options like the USDA loan aren’t available, and you don’t qualify for a VA loan or a GNND loan, the Conventional 97 loan might be a good option. A mortgage through the conventional 97 program is a great way to get a mortgage with less than 20 percent down.
Down Payment Assistance
If you don’t qualify for a USDA or VA loan and you don’t have the money to put a down payment on a home, that doesn’t mean you can’t still get a mortgage. Every state has down payment assistance programs to help low- and middle-income borrowers cover the cost of a house down payment.
Look into down payment assistance programs in your area, or consider another option like borrowing against your retirement accounts or getting a piggyback loan to cover your down payment.
Down payment assistance is a great way to get a mortgage with less than 20 percent down.
Getting a Mortgage with Less Than 20 Percent Down – Summary
Would you like to own a home, but aren’t sure if you can afford a down payment? You don’t need as much money as you might think. You can qualify for a mortgage with less than 20 percent down through the use of several different programs. With government-backed non-conventional loan programs and down payment assistance, you can get into a home with no money out of pocket, so you can start building equity for your family’s future.