Most people instantly assume that it takes a 20% down payment to buy their first home, so consequently, many people put off buying a home far longer than they should simply because it’s not easy to come up with that 20% down payment. And while it’s true that a conventional mortgage can require up to 20% down, there are options that can put you in your first home for much less. In fact, there are even mortgage options that require no down payment. That’s right, no down payment. That means you could be in your own home a lot sooner than you think!
Let’s take a look at these low to no down payment options:
- USDA Loans: The United States Department of Agriculture (USDA) offers a rural development mortgage guarantee that requires no down payment for first time home buyers (and certain others) who buy a home in an eligible rural area (think small towns and the surrounding countryside). There are some restrictions on income, along with geographical restrictions, but the mortgage itself comes from a bank, with no mortgage insurance required. Instead you’ll pay a 1% upfront guarantee fee (which is normally rolled directly into the loan amount), as well as an annual guarantee fee of 0.35% of the loan balance. To find out if the homes you’re interested in might qualify, visit the USDA website and study the maps that cover USDA loans.
- Navy Federal Credit Union: Members of the military, civilian employees of the military, and employees of the Department of Defense (and family members) can get 100% financing for the purchase of their primary home, with only a minimal 1.75% funding fee.
- VA Loans: Qualified veterans, active duty service members, and certain members of the National Guard and Reserves can qualify for a guaranteed zero down payment purchase or construction loan with no mortgage insurance through private lenders with only a funding fee (1.25% – 3.3%) that can be rolled right into the loan amount. Even better, this option is available to qualified veterans, service members, etc., any time that you purchase a home. So, whether it’s your first home or your fifth home, if you qualify, VA may be the way to go.
- FHA Loans: FHA loans are one of the best low down payment options for people with imperfect credit histories. With a minimum down payment of only 3.5%, an upfront premium of only 1.75%, and an annual premium of only 0.8% of the mortgage amount ($66.67 per month for a $100,000 home loan), this option may just put you in the home of your dreams now.
- Mortgage Insurance: If your credit is good to excellent, you may qualify for a mortgage with a down payment as low as 3% provided you pay mortgage insurance until the balance on the mortgage is under 80% of your home’s value. Once it reaches that threshold, then you can cancel the mortgage insurance.
Ready to own your own home? Start with your credit score, get pre-approved, and then go find your dream home!