It would be nice to buy a home with little to no down payment. But that’s actually possible on some mortgages. Indeed, these home loans are designed to set first-time homebuyers on the path to homeownership and reap its unique benefits such as home equity.
These mortgages have down payments as low as 3%, or even 0%! What’s more, these programs, as applicable, can accept gifts, grants and other forms of down payment assistance. Take a look at these low to no down payment loans for first-time homebuyers. Click here to know more.
First-Time Homebuyers, Defined
Who are first-time homebuyers? These are people (individuals including their spouses) who have not owned a home for three years on the date of the subject property purchase, as defined by the Housing and Urban Development (HUD).
You can also be a first-time homebuyer if you are:
- A single parent who only owned a home while married with a former spouse.
- An individual who is a displaced homemaker and owned a home with a spouse.
- An individual whose ownership of a principal residence is that of a house that has no permanent foundation, or not in compliance with relevant building codes and regulations.
HUD/FHA’s major priority is helping such homebuyers purchase and own their first home. That being said, let’s now look into mortgages whose down payments ideally won’t break the finances of buyers so they can make way for other expenses associated with owning a home.
Low to No Down Payment Mortgages
A. Government Mortgages
The federal government via the FHA, VA, and USDA backs home loans for varied individuals and families in the U.S.
For example, the FHA has mortgages whose down payments are as low as 3.5%. This down payment is reserved for those with qualifying credit scores at 580 or higher. The FHA also allows down payment grants and gift funds for down payments on purchase or 203(b) loans as well as purchase and rehabilitation loans or 203(k).
[sc_content_link label=”Let’s help you find the loan of your dreams.”]
The VA, on the other hand, offers 100% financing! This means zero down payments and no mortgage insurance to boot. Like FHA loans, VA loans are designed for eligible veterans and active duty members of the U.S. Armed Forces with easy-to-qualify-for standards.
For its part, the USDA who also makes loans directly has zero-down loans for homes located in eligible rural areas. Rural and suburban homebuyers can take advantage of low interest rates. Qualifying for USDA mortgages entails meeting the county’s applicable income limit, a 21%/41% debt-to-income ratio, and a decent credit record, among other things.
B. Conventional Loans Owned by Fannie Mae and Freddie Mac
There are conventional loan programs conforming to eligibility standards set by Fannie Mae and Freddie Mac that offer low down payments, such as 3% of the purchase price.
Fannie Mae’s HomeReady™ mortgage offers 97% financing or down payments as low as 3%. It is available for any homebuyer, including first-timers. HomeReady™ mortgage offers gifts, grants, cash, and Community Seconds® for down payments. More recently, Fannie Mae has expanded the program’s eligibility to encourage buying homes in low-income communities.
As for Freddie Mac, it has Home Possible® mortgages with 3% down payments. Freddie did tweak the program this year to require borrowers to come up with the three-percent down payment, unlike before when lenders can contribute 2%. Nonetheless, a portion of the 3% required contribution from the borrowers can be funded using gifts and grants.
So, have you decided which low-to-no down payment program is for you?