Down payment options for first-time home buyers


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If you’re struggling to save for a mortgage down payment, consider these low or no down payment options. (Shutterstock)

Saving for a down payment is a significant barrier to homeownership, especially for people of color and those burdened with student debt, according to a report by the Center for Responsible Lending. This is no surprise, as it can take years to save for a 20% down payment.

The good news is that you have options to drastically reduce or even eliminate the cost of a down payment. Keep reading to learn more about strategies and programs to lower your down payment.

Explore your home loan options using Credible for compare current rates and lenders.

What is a mortgage deposit?

A down payment is the cash amount you pay at closing for to buy a house. It is usually expressed as a percentage of the purchase price and shows creditors that you are a serious buyer. A 20% down payment is generally required for a down payment on a conventional mortgage.

Your mortgage will cover the rest of the purchase price, so the larger the down payment you make, the smaller your mortgage will be. But a lower down payment requirement – ​​or no down payment at all – can help you become a homeowner sooner.


How to find a down payment

If you want to make your dream of home ownership a reality, here are some ways to finance a down payment:

  • Save. You can put a certain amount of money from each paycheck into a savings account and save for a down payment. To speed up the process, consider taking on a side job or a part-time job.
  • Learn about national and local down payment assistance programs. Many states and local municipalities offer down payment assistance programs, generally for first-time buyers. You can often get help with your down payment in the form of a grant or forgivable loan.
  • Tap your retirement account. If you have enough funds in your 401(k), Roth IRA, or other retirement account, you can withdraw funds to pay a down payment. Remember that if you go this route, you risk being penalized and derailing your retirement goals.
  • Ask your family or friends. Let your loved ones know that you hope to buy a home in the near future. They may be generous and offer you some or all of your down payment.

To find a good rate, use Credible. Credible can show you current mortgage rates with multiple mortgage lenders and help you make an informed decision about your home loan.

2 mortgage options with no down payment

Two leading government programs allow you to obtain a mortgage with no down payment:

  • VA Loans — Backed by the Department of Veterans Affairs, VA loans are available to current and former service members or surviving spouses. In addition to the absence of down payment, these loans offer competitive rates and limited closing costs. But you will have to pay financing fees.
  • USDA loans — The United States Department of Agriculture offers USDA home loans, which may be an option if you are buying a home in a rural area and meet certain income limits. As long as you qualify, you won’t have to deposit any money.


4 options for low down payment

If you are looking for low down payment options, consider the following:

  • State programs — Many programs and loans are designed specifically for first-time home buyers. Learn about the programs offered by your state’s housing finance agency. If you meet certain requirements, you can receive funds to pay for your down payment and reduce your personal expenses.
  • FHA Loans — Backed by the Federal Housing Administration, FHA loans allow you to put down as little as 3.5%. But you will need a minimum credit score of 580 to do this.
  • HomeReady and Home Possible programs — Fannie Mae HomeReady and Freddie Mac Home Possible Loans are designed to make buying a home easier for first-time home buyers. Their down payment requirements are as low as 3%.
  • Conventional loans — It is possible to find a conventional loan with a down payment of only 3% to 5%. But you will need a good credit score to qualify and must pay private mortgage insurance (PMI) until you reach 20% equity in your home.

4 mortgage options for people with bad credit

Options with little or no down payment are available to you, even if you don’t have the best credit:

  • FHA Loans — FHA loans have low credit score requirements compared to other major home loan programs. You can qualify with a credit score as low as 500 as long as you deposit 10%. If your credit score is at least 580, you will only need a 3.5% down payment.
  • VA Loans — Besides being a no down payment option, VA loans have no credit score requirements. That said, some VA lenders set their own credit requirements, which you will need to meet.
  • USDA loans — When it comes to USDA loans, you generally need a minimum credit score of 640 to qualify.
  • Non-qualified loans — Offered by some banks and credit unions, non-qualified or non-QM loans are consumer mortgages that do not meet the qualification criteria for conventional mortgages and other traditional home loans. Even if you don’t need good credit, you’ll need to show that you can repay your loan by providing the lender with pay stubs, W-2 forms, and tax returns.

Ready to start the mortgage process? Visit Credible to compare rates and lenders.


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