- It’s possible (and common) for buyers to purchase a home with less than a 20 percent down payment.
- In addition to a down payment, financial factors and credit history are important considerations for loan approval.
- Pending other factors, buyers with less than 5% down can get approved for a variety of loans — including conventional, FHA, VA and USDA loans.
Buyers commonly assume that they need to have 20 percent down before they can buy a house. It’s true that the more you have saved for a down payment, the easier it can be to get approved for a loan with ideal terms. However, it’s possible and common to purchase a home with less than a 20 percent down payment.
Here, we discuss some insights you can use when beginning the home purchase process with a lower down payment.
Can I get a home loan with a 3 percent down payment?
The simple truth is this: Some would-be buyers are simply unable to save for a large down payment, but their financial and credit history shows that they would likely be responsible homeowners nonetheless.
In cases like these, mortgage consultants work to evaluate buyers on their overall loan worthiness, not just the money they have in the bank. (After all, the ability to consistently pay a monthly mortgage payment should be just as important as the ability to save in advance of the mortgage application.)
How often does this happen, though? Recent statistics from the National Association of REALTORS® show that the median down payment amount for all buyers in 2018 was 13 percent. And, first-time homebuyers put down an average of 7 percent on their properties. So, not only is it possible to put down less than 20 percent at closing, it’s also quite common!
What do home mortgage lenders look for?
Getting approved for a home loan is one of the first steps in your home purchase journey. During this step, lenders will pay attention to:
- Your financial history and credit, especially your history of paying bills on time
- Your employment history — which includes stability and wage growth
- Your recent tax returns
When it comes to purchasing a home, the cleaner your finances and your employment history, the better. This is especially true if you have a lower down payment.
What are my loan options?
Below is a chart of the most common loan types. Here, we include their typical minimums for down payment and credit score*. Remember, while it’s possible that you could get approved with the minimum credit score, you may have a higher interest rate than someone with a higher credit score. And, if you are able to put down more money at closing, you’ll pay less in interest over the life of the loan.
|Type of loan||Down payment minimum||Credit score minimum||Mortgage insurance or annual fee|
|Conventional loan||3%||620||Monthly private mortgage insurance payments until 20% equity is reached|
|FHA loan||3.5%||580||1.75% mortgage insurance premium at closing
Monthly mortgage insurance payments for the life of the loan
|VA loan||0% (1-time funding fee of .5 - 3.3%)||500||N/A|
|USDA loan||0% (1% upfront fee)||640||Annual fee of .35%|
*Rates and terms are subject to change and may vary from lender to lender. This is not an offer to make a loan or to make a loan on any particular terms. The preceding is for general informational purposes only.
Are you looking for even more information on loan types, mortgage insurance and how to apply for down payment assistance?
Read up on:
- Major loan types every homebuyer should know
- Do you qualify for down payment assistance?
- What is mortgage insurance?
Ready to get started?
If you’re ready to start house hunting but don’t have 20 percent to put down, remember that many other homebuyers have been in your shoes. Your mortgage consultant will analyze your unique situation to determine if you are eligible for a loan program.
Don’t hesitate to get in contact with Edina Realty or one of our nearly 2,400 agents for additional help.
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