Which Mortgage Has the Lowest Down Payment?

Down payments are a large part of the home buying process and one of the biggest road blocks to homeownership. It is a common misconception that purchasing a home will require 20% down. This is simply not true and there are many loan programs available that allow just 3.5% to even 0% down payment for those who qualify. In many cases, as long as it’s properly documented and notarized, the down payment can even come to you as a gift from a family member or a loved one.

While putting 20% down can lower your monthly mortgage payments, many homebuyers don’t have that much saved. Working with an experienced loan officer and mortgage lender can help you find the right loan programs and down payment assistance options for your situation. Let’s explore some of the low down payment home loans available and who qualifies for them.

The VA loan program, established in 1944 through the GI Bill, continues to support eligible Veterans, active-duty service members, and qualifying spouses in achieving homeownership. Through approved lenders like RWM Home Loans, eligible clients can purchase a home up to their county’s loan limit with as low as no down payment required. Homes above that limit may qualify for a VA Jumbo Loan, which typically requires a small down payment.

• As low as no down payment for eligible clients
• No monthly mortgage insurance
• Closing costs may be covered by the seller or lender
• VA funding fee can be financed (and may be waived for Veterans with service-connected disabilities)
• Assumable by another qualified client
• Foreclosure avoidance assistance through VA servicing

Beyond the financial benefits, VA loans may also offer flexible qualification standards compared to other loan types. The standard debt-to-income (DTI) guideline is 41%, though higher ratios may be approved depending on compensating factors. Most lenders look for a minimum credit score of around 620, but exact requirements can vary. This flexibility ensures that more Veterans and service members can access the benefits they’ve earned.

• Active-Duty & Veterans: Eligible after 90 days of active-duty service
• Reserves & Coast Guard: Require 6 years of service, accumulated 96 pts documented thru a Points Statement and proof of honorable service
• Retired Veterans: Require a Certificate of Eligibility (COE), often obtained by the lender
• Retired Reserves & National Guard: Require six years of service and proof of honorable service
• Surviving Spouses: May qualify if the service member passed in the line of duty or from a service-related disability

The USDA loan is one program that can provide up to 100% financing with as low as no down payment option. The U.S. Department of Agriculture insures this mortgage program, which helps homebuyers in suburban (defined as “a community with less than 20,000 residents”) and rural areas. It is highly recommended to explore your geographic eligibility because roughly 97% of the land mass in the U.S. is considered eligible for this unique loan program.

Here’s a look at what it typically takes to qualify for a USDA loan:

• Your household income needs to be at or below 115 percent of the median income for the area where the home is located.
• You should have a minimum credit score of 640.

Plus, you will need to meet standard debt-to-income guidelines. This includes:

• Housing expenses: Your mortgage payment, including taxes, insurance, and HOA dues if you have them, should be about 29 percent or less of your gross monthly income.
• Total monthly debts: All of your regular monthly payments together, such as your mortgage, student loans, car loans, and credit cards, should be about 41 percent or less of your gross monthly income.

USDA loans include a small insurance fee that helps keep the program affordable. This fee has two parts: an upfront cost of about 1 percent of the loan amount, which can be added into the loan, and a yearly fee of about 0.35 percent that is paid monthly with your mortgage. These low fees help keep your overall payment down and make the program more accessible for many homebuyers.

The HomeReady Mortgage program was implemented in 2015 to expand homebuying eligibility as an income-based loan program. Clients who are eligible for the HomeReady mortgage program only need to put down 3% and receive many benefits such as more competitive monthly mortgage insurance rates.

• Down payment can come from flexible sources such as gifts or down payment assistance programs
• Minimum credit score requirement of 620+
• Non-occupant co-signer’s income can be used for qualification
• Income from household members not on the loan can help justify approval if other requirements aren’t met

The HomeReady program has income limits based on where the home is located. If the property is in a low-income census tract, there are no income limits. For all other areas, your income must be 100% of the area’s median income or less. See if you qualify instantly using Freddie Mac’s Eligibility Tool, or connect with one of our loan officers for expert guidance.

A Conventional Loan is one of the most common options for homebuyers. With a down payment as low as 3 percent, you may be able to finance up to 97 percent of the home’s value. Unlike programs that have income or location limits, this option is more flexible and can work well for a wide range of buyers, especially first-time homebuyers.

You can choose a fixed-rate or adjustable-rate loan, and this program can be used for a single-family home or condo as long as it will be your primary residence.

There are a few guidelines to keep in mind. Your loan amount will need to stay within the conforming loan limit for the area where the home is located. These limits change each year and may be higher in certain locations. If your down payment is below 20 percent, you will have private mortgage insurance, which adds to your monthly payment and can typically be removed once you have enough equity.

Because this is a conventional loan, there is no upfront mortgage insurance premium like an FHA loan and no funding fee like a VA loan. This helps keep your upfront costs as low as possible while still giving you flexible options for financing your home.

FHA loans have been helping homebuyers for decades by offering low down payment options and flexible credit guidelines. Because these loans are insured through the Federal Housing Administration, many homebuyers find it easier to qualify compared to some other loan programs. FHA financing can be a great fit for first-time buyers as well as those looking to move up.

• Down payment options as low as 3.5 percent.
• Your down payment can come from gift funds or approved down payment assistance programs, giving you more flexibility.
• FHA loans include an upfront mortgage insurance premium, typically 1.75 percent, which is often financed into the loan.
• You also pay an annual mortgage insurance premium as part of your monthly payment, which is often around 0.85 percent but may be lower with a larger down payment.
• FHA loan limits apply and put a cap on how much you can finance. These limits vary by location and are updated each year.
• There are no income or geographic restrictions with FHA financing.
• FHA guidelines may allow higher debt-to-income ratios, depending on your overall profile.
• Homebuyers with credit scores as low as 580 may be eligible.

Since the down payment can be paid in the form of a gift fund from relatives, employers, friends, charities, or programs run by governmental agencies/public entities, there are ways to receive a grant large enough to cover the cost of the down payment. With one program in particular, you can receive up to 4.5% of the home’s value to use on the down payment, closing costs, and/or the required FHA upfront mortgage insurance premium.

• Restricted to loans that are on a 30-year fixed-term with a loan amount less than $453,100 dollars (or your county’s FHA income limit)
• The property must also be owner occupied as the owner’s primary residence.
• Your income cannot exceed 115% of the property’s Area Median Income
• Our credit score must also be greater than or equal to 620
• At least one of the clients must complete a homebuyer’s education course.

RWM Home Loans offers a program that lets you buy a home with just 1% down. The first loan covers 97% of the price, and a second loan covers 2%, which may be forgiven after 3 years if you live in the home and make on-time payments. There are no monthly payments on the second loan, but you’ll still need extra money for closing costs.

Other benefits of these programs are the lack of mortgage insurance requirements, competitive fixed-rate, and the option to refinance with only 5% equity in your home.

• Must be a first-time homebuyer
• Home must be your primary residence
• Income requirements vary by city, zip code, and census tract (visit here to see your area details)
• Home buying counseling from a HUD-approved counseling agency may be required for some clients
• A credit score above 660

Program availability depends on the demand and funds available. Once the funds are used up, no more assistance is offered until new money becomes available.

Every financial situation is unique, and yours is no exception. Knowing your down payment options is one of the first steps to successfully financing your home. No matter which loan you are using we are here to help you every step of the way. Explore our expert Loan officers or contact us today to get started on your homebuying journey.