There's a widespread perception that you need to put at least 20
percent down to buy a home these days. Fortunately for home buyers,
that's just not true.
A recent analysis by Lending Tree found that the average U.S.
mortgage down payment is about 12.25 percent. That means there are
a lot of buyers out there who are putting down even less than
In fact, even in today's mortgage market, it's still quite
possible to buy a home with a down payment of 5 percent or less.
You can even still get a mortgage for 0 percent down through
certain programs, which aren't as hard to qualify for as you might
The primary remaining source of no-money-down mortgages these
days is the Veterans Administration, through a VA home loan. Of
course, to qualify, you typically have to have either served or be
serving in the military.
What's less well known is that certain nonmilitary persons can
qualify for VA mortgages, including certain surviving spouses of
veterans, officers of the Public Health Service or National Oceanic
and Atmospheric Administration and certain others.
USDA another zero-down option
Even if you're not a vet, you can still get a zero-down payment
mortgage through the USDA Rural Development Service. There are
certain restrictions, however. Your income can be no more than
slightly above the average for your area, you have to presently be
without adequate housing and the home you buy must be in a rural
area. However, the USDA's definition of "rural" is quite broad and
includes many small cities, towns and suburbs.
Though the program is self-funding, funds for USDA mortgages are
limited, so it's best to apply early in the year to have your best
chance of being approved. Otherwise, you may have to go on a
waiting list until the following year.
FHA down payments as low as 3.5%
The most popular low-down-payment mortgage program is the FHA,
which allows down payments of as little as 3.5 percent. FHA
mortgages traditionally made up only a small slice of the real
estate market, with a clientele of mostly lower-income and
first-time homebuyers, but their popularity has exploded since the
subprime mortgage crisis as a source of low-down payment home
loans. An increase in lending limits to as much as $730,000 in some
areas didn't hurt either.
Outside of those programs, you can still get a conventional,
"standard" mortgage with as little as 5-10 percent down. These
loans, which are backed by Fannie Mae or Freddie Mac, generally
require better credit than the programs mentioned above, but some
lenders will still accept you with a sub-700 credit score, rather
than the "perfect" scores many people think they need these
A lender is also more likely to approve you for a mortgage with
5 percent down if you're buying in a local market where real estate
values have been relatively stable, rather than one that
experienced steep declines during the downturn and is still
Lower down payment = higher costs
One thing to note about all these low-down-payment programs is
that they're typically more expensive than a mortgage where you put
20 percent down. Your interest rate may be a bit higher, and in
most cases you're going to have to pay some sort of mortgage
insurance, either up front or as an annual fee, or both.
Both VA and FHA mortgages charge funding fees that vary
depending on the amount of your down payment, with higher fees for
smaller down payments. Conventional mortgages backed by Fannie Mae
or Freddie Mac require private mortgage insurance (PMI) on
mortgages with less than 20 percent down, which effectively raises
your mortgage interest rate by about half a percentage point.
3 percent down, no mortgage insurance
One low-down payment program that doesn't require mortgage
insurance is Fannie Mae's Homepath, which is the agency's program
for selling foreclosed properties that have come into its
inventory. Homepath mortgages require only 3 percent down, there's
no requirement for mortgage insurance and you can borrow up to an
additional $35,000 for necessary renovations and repairs.
It's also not limited to buying a home for your primary
residence - the program can be used to buy second homes and
investment properties as well.
Though mortgage credit is much tighter these days than it was
just a few years ago, it's still quite possible to get a home loan
with a minimal down payment. Remember, not all lenders have
the same lending standards or requirements, so it's often just a
matter of finding the right one who meets your needs.