Many people mistakenly think that they must put down 20% on a home. Today, that’s not the case. Did you know that there are even loans that allow you to put nothing down on a home? This isn’t common knowledge among borrowers, which could be one of the reasons that you haven’t bought a home yet.
Keep reading to learn which loan programs allow the lowest down payment.
Are you a veteran of the military with an honorable discharge? If so, you may be eligible for the VA loan. This loan program allows veterans to secure 100% financing. In other words, you don’t need a down payment for this loan, in most cases.
The VA will guarantee the loan up to an amount of $484,350 for veterans that haven’t used their benefits yet. This means you can buy a home that costs up to $484,350 and not put any money down on the home. Now, if you want to buy a home that costs more than this amount, you will need to make a down payment, but this is rare. If you do buy a home for more than the standard amount, you would have to make a down payment that is equal to 25% of the difference between the purchase price and $484,350.
Another loan that doesn’t require a down payment is the USDA loan. This loan is backed by the USDA, which means the USDA will pay the lender back a portion of the loan if you default on it. This is how USDA lenders are able to get away without making you put money down on the home.
The USDA loan is only for borrowers that are from low to moderate-income families and that purchase a home in a rural area. The USDA is rather liberal with their definition of rural, though. You don’t have to live in the middle of cornfields in order to get a USDA loan.
The USDA does have strict income requirements, though. If you make too much money, you won’t qualify. The USDA loan is only for those borrowers that can’t get financing from any other loan program and that has low income.
FHA loans require a down payment of just 3.5% of the purchase price of the home. On a $200,000 home, you would need to put down $7,000. There’s good news, though. If you don’t have the money to put down on the home, you can get the money from a relative or employer, as long as it’s a gift.
The FHA doesn’t have any requirements stating that the money for the down payment must come from your own funds. If you are able to get gift funds and you can prove they are gift funds rather than a loan, you can use them for the down payment. As long as you have the 3.5% down payment, you can get the FHA loan.
FHA loans are unlike USDA or VA loans as far as who is eligible for them. Anyone that qualifies for the loan can use the FHA program. You just have to have a minimum credit score of 580 and maximum debt ratios of 31/43. You must also not have any defaulted federal debt in your past and you must prove that you will live in the home as your primary residence – the FHA program is only for owner-occupied properties.
Conventional loans are the loans that most people think of when they think of getting a mortgage. This is the loan program that has the stigma that you need a 20% down payment. While a 20% down payment is beneficial, it’s not required.
Technically, you can get a conventional loan with as little as 3% to 5% down on the home. The difference between the lower down payment and the standard 20% down payment is that you’ll have to pay Private Mortgage Insurance on your mortgage in addition to the principal, interest, real estate taxes, and insurance. You pay the PMI until you owe less than 80% of the home’s value.
Conventional loans have the strictest guidelines, though. Even though you don’t need a large down payment, you need a high credit score, low debt ratio, and stable employment. In comparison, you need just a 580 credit score for the FHA loan, but a 680 credit score for the conventional loan.
As you can see, you can put as little as nothing down on a home and get financing. Don’t let the lack of a down payment set you back. Instead, maximize your other qualifying factors so that you are a good candidate for any of the loans that are available to you today.