4 Mortgage Options For A Low Down Payment

There are a lot of people that would love to buy a house right now, but think they can’t because they don’t have the traditional 20 percent needed for a down payment. Luckily, there are some lesser known mortgage options that allow you still buy your own home, even if you don’t have a lot of money available.

While banks are making it more difficult to get a loan and no-down-payment loans have all but disappeared, there are still ways to get a home with 5 percent down or less. Here are 4 mortgage options for a low down payment.

1. Conventional Mortgage

Conventional mortgage usually means that a loan conforms to standards set by Fannie Mae or Freddie Mac. These two government agencies back home loans and make it safer for banks to make the loan. Typically, a conforming loan can be no larger than $417,000 in most parts of the country, or $625,000 for a “jumbo” loan in high-cost markets.

Both Fannie Mae and Freddie Mac will back mortgages with as little as 5 percent down. Most lenders will require 10 percent or more if your credit rating is below 700. However, both Freddie Mac and Fannie Mae offer special incentives for buyers to purchase foreclosed properties. These incentives include down payments of as little as 3 percent.

Both groups also allow buyers to pass on the mortgage insurance, which is usually required if you have less than 20 percent down, and you can still qualify for the programs if you have flawed credit. The only downside is that you will have a reduced group of houses to choose from and many foreclosed homes need work done on them.

2. FHA mortgages

FHA mortgages are popular choices for first-time buyers. They feature low down-payments with as little as 3.5 percent down. You are not limited to foreclosed properties, but the upper loan limits are lower than with traditional loans – just $271,050 for a single family home in most of the US.

FHA mortgage rates are fairly competitive and are usually only slightly higher than traditional mortgage rates. Where you’ll notice the difference is in the mortgage insurance, which can be up to 1.25 percent of the loan balance each year.

3. VA mortgage

If you’re a veteran or an active-duty military member, you can get a VA mortgage to help you finance your home. A VA mortgage gives you the opportunity to purchase a home with no money down and no mortgage insurance. This is possible because in return for your service to the military, Uncle Sam will guarantee your loan.

In most of the country, qualified borrowers can get up to $417,000, or up to $1 million in high-cost areas. You can also increase your purchasing power by providing a down payment.

4. USDA mortgages

You’re probably used to seeing USDA on your food labels, but the government agency is also involved in home loans. USDA loans are not the most popular variety of mortgage, but they offer 0 percent down loans with some of the best rates on the market.

Typically, USDA loans are limited to homes located in rural areas. The definition of a rural area is a little grey and covers some areas that most people would consider a suburb or a midsize town.

USDA mortgages come with income limits, and homes purchased must be modest in size and cost. There is often a waiting list for USDA mortgages due to limited funding, but if you’re looking for a small starter home in a rural area, you can’t beat a USDA mortgage.

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