Mortgage Options with Low Down Payments

If you're a first-time homebuyer worried about the prospect of a 20% down payment, here's some encouraging news. Many loan types don't mandate a 20% down payment, and this substantial amount is no longer the standard. According to the National Association of REALTORS,® the median national down payment was 13% in 2022.

Explore the following common mortgages that necessitate minimal or no down payment if you meet the criteria. Additionally, find answers to frequently asked questions about home loans with low down payments.

Mortgages that require no to little money down

FHA Loans — Starting at 3.5% Down Payment

Federal Housing Administration (FHA) loans are government-regulated and insured mortgages designed to facilitate homeownership for individuals with less-than-ideal credit, eliminating the need for a substantial down payment.

Key FHA Loan Requirements:

• - Down payment as low as 3.5%

• - Minimum credit score of 580

• - Debt-to-income ratio below 45% (typically)

• - Two-year employment history

• - Purchase a primary residence with 1 to 4 units

• - Loan amount within local FHA loan limits

Conventional Loans — Starting at 3% Down Payment

Although many conventional loan applicants opt for a 20% down payment, it's not obligatory. Qualified buyers can secure these loans with down payments as low as 3%. Additionally, some lenders provide additional mortgage grants to further reduce your out-of-pocket expenses.

Key Conventional Loan Requirements:

- Down payment as low as 3%

- Minimum credit score of 620

- Debt-to-income ratio below 43% (typically)

- Two-year employment history

- Loan amount within conforming loan limits

- Purchase a property with 1 to 4 units

VA Loans — Starting at 0% Down Payment

Offering a transformative solution for veterans, active service members, and the spouses of fallen soldiers, U.S. Department of Veterans Affairs (VA) loans provide the opportunity for numerous homebuyers to secure financing with a 0% down payment.

Key VA Loan Requirements:

- Eligible military service

- 0% down payment

- Credit score range of 580–620

- Debt-to-income ratio below 41%

- Two-year employment history

- Purchase a primary residence with 1 to 4 units

Why Opt for Less Than a 20% Down Payment?

The choice to buy a home should be guided by individual needs, budget constraints, affordability considerations, and family dynamics. Not every buyer can afford a 20% down payment, and there are various products tailored to help individuals achieve homeownership without the need for substantial upfront funds. FHA, VA, and Conventional loans provide down payment options as low as 0% (VA loan), 3.5% (FHA loan), and as minimal as 3% (Conventional).

Are There Drawbacks to Low-Down Payment Mortgages?

One notable distinction with lower down payment loan alternatives is the inclusion of mortgage insurance (MI) in the payment, excluding VA loans. While not inherently negative, it requires careful planning and budgeting. MI provides the lender with protection in case of loan default, but the positive aspect is that you can cancel MI once you achieve 20% equity in your home.

When and Why Engage with the MTH Mortgage Team?

It is strongly recommended for potential buyers to engage with an MTH Mortgage loan consultant and obtain prequalification, even if their home purchase is planned for a year or more in the future. Our loan consultants can delve into projected payments, various loan types, down payment choices, providing prospective buyers with the essential knowledge for effective planning and preparation. Gathering information early enables potential buyers to save the necessary funds for a down payment, ensuring they can secure the desired home while adhering to a comfortable budget.