Let’s face it, saving 20% of the price of a home can be daunting – and depending on your debt, job or other factors, it could take you a long time to save up that kind of cash. However, alternative loan options are available for those who cannot save 20% for a down payment.
Here are insights for you to consider as you dive into the world of saving, borrowing and buying. Remember, everyone’s finances are different, so it’s best to consult with a mortgage consultant or financial advisor before you get started on the path to homeownership.
FHA loans
FHA loans are backed by the Federal Housing Administration, and they can benefit first-time homebuyers or those who are finding it hard to save up a 20% down payment. FHA home loans allow borrowers to pay a smaller percentage for their down payment.
FHA loans do have limitations. First, FHA loans are meant to be “helper loans,” so they won’t allow you to finance a multi-million dollar home. The limits for FHA loans are set by county.
Last, FHA loans require you to pay mortgage insurance at closing and throughout the life of the loan. Mortgage insurance costs vary, so it’s critical that you factor this cost in when you’re considering buying. To determine if an FHA loan is right for you, talk to a mortgage loan officer.
FHA Loan Details for Borrowers
|
Minimum Credit Score |
580 |
|
Minimum Down Payment |
3.5% |
|
Debt-to-Income Ratio |
Capped at 43% |
|
Loan Limit |
|
|
Mortgage Insurance |
VA loans
If you’re a veteran, you most likely know whether you are eligible for VA loans, which are private loans backed by the Department of Veterans Affairs (VA). VA loans are the only major loan type that don’t require a down payment and also don’t require mortgage insurance.
Your home mortgage consultant can help you determine if you’re eligible for a VA loan. View eligibility guidelines and VA loan benefits here.
VA Loan Details for Borrowers
|
Minimum Credit Score |
Set by individual lenders |
|
Minimum Down Payment |
Not required |
|
Debt-to-Income Ratio |
Set by individual lenders |
|
Loan Limit |
Loan limits are set by county and match the conforming loan limits set by FHFA. The 2023 loan limit is $647,200. |
|
Mortgage Insurance |
Not required. |
Conventional loans
If you have a strong financial history but simply lack the down payment, you may be eligible for a conventional loan. The benefit to these loans is that — unlike FHA loans, which require you to pay mortgage insurance for the entire loan — they only require you to pay private mortgage insurance until you reach 20% equity on the property.
These loans are intended for less risky buyers, so they do require a higher credit score and may involve a more strenuous mortgage application process.
Conventional Loan Details for Borrowers
|
Minimum Credit Score |
620 |
|
Minimum Down Payment |
3% (but loan terms will improve if you put down more). |
|
Debt-to-Income Ratio |
Set by individual lenders |
|
Loan Limit |
The 2023 conforming loan limit is $647,200. |
|
Mortgage Insurance |
Required until 20% equity position is reached. (Mortgage insurance is waived if the buyer puts down 20% at closing.) |
Getting started with less than 20% down
Even if you can’t save a 20% down payment, you may still be eligible for a loan — or you may be eligible for down payment assistance programs. Talk with your REALTOR®, financial advisor or a mortgage loan officer to determine the most responsible loan choice for you and your family.
+ Edina Realty Mortgage is an affiliate of Edina Realty. See Affiliated Business Arrangement Disclosure Statement + Prosperity Home Mortgage, LLC may operate as Prosperity Home Mortgage, LLC dba Edina Realty Mortgage in Minnesota and Wisconsin. ©2024 Prosperity Home Mortgage, LLC dba Edina Realty Mortgage. (877) 275-1762. 3060 Williams Drive, Suite 600, Fairfax, VA 22031. All first mortgage products are provided by Prosperity Home Mortgage, LLC. Not all mortgage products may be available in all areas. Not all borrowers will qualify. NMLS ID #75164 (For licensing information go to: NMLS Consumer Access at http://www.nmlsconsumeraccess.org/) Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act. Licensed by the Delaware State Bank Commissioner. Georgia Residential Mortgage Licensee. Massachusetts Mortgage Lender and Mortgage Broker MC75164. Licensed by the NJ Department of Banking and Insurance. Licensed Mortgage Banker-NYS Department of Financial Services. Rhode Island Licensed Lender. Rhode Island Licensed Loan Broker. Rhode Island Licensed Third-Party Loan Servicer. Also licensed in AK, AL, AR, AZ, CO, CT, DC, FL, ID, IL, IN, KS, KY, LA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NM, NV, OH, OK, OR, PA, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV and WY.
