January 19, 2023
You do Not Need 20% Down to Buy a Home
You Don’t Need 20% Down To Buy A Home
It seems like you’ve been trying for years to save enough money for a down payment
for a home. You’ve cut corners, taken lunches to work and yet, home prices continue to
rise and your dream of owning a home seems out of reach.
Guess what? Maybe you are closer to owning a home than you think, because for
many loan programs, you don’t need to have 20% for a down payment to purchase a
No matter how much you may have saved, there’s probably a mortgage program that
can help you, right now, get into a home. Let’s take a look at a few options out there.
We’ll begin with the FHA Home Loan.
FHA Loan (3.5% Down Payment)
FHA loans allow for a 3.5 percent down payment. FHA Loans are insured by the
Federal Housing Administration (FHA), and these loan programs are perfect for first–
time home buyers.
FHA loans require mortgage insurance premiums or what is called MIP.
Another great low–down payment loan program is the HomeReady Mortgage.
The HomeReady™ Mortgage (3% Down Payment
The HomeReady™ mortgage is a low–down payment loan available through Fannie
The HomeReady program allows for 3% down, grants access to below–market
mortgage rates, and offers discounted rates for private mortgage insurance.
HomeReady™ also gives you the ability to use income from everyone who will be living
in the home toward the actual mortgage approval. This can include parents earning
pension or social security income, or roommates who want to all go in and buy a home
The HomeReady™ program is available in low–income areas, areas with a high minority
population, and areas affected by a natural disaster. However, you do not need to be a
low–income household or a minority to get approved. You must only buy a home in a
The next low–down payment option is the Conventional 97, which is a 3% down
payment loan program.
Conventional 97 (3% Down Payment)
The Conventional 97 is a special program which was recently reinstated by the Federal
Housing Finance Agency (FHFA). They are the parent of both Fannie Mae and Freddie
The Conventional 97 requires a down payment of just 3 percent. The program also
allows a buyer’s down payment to be gifted by a third–party, so you really don’t have to
have your own money for a down payment.
The only requirement is that the person who is gifting the money for the down payment
is a blood or marriage relative, a legal guardian, a domestic partner, or finance/fiancée
to the buyer of the home.
The Conventional 97 mortgage is limited to $510,400, regardless of your local mortgage
loan limit; and multi–unit homes are not allowed. The program is also restricted to fixed–
rate mortgages only.
The Conventional 97 program may cost more on a monthly basis than other loan
programs like FHA. But you can cancel the program’s mortgage insurance in as few as
12 months from the date of purchase. So, in the long term, your monthly payment may
be less once the mortgage insurance is canceled.
Next, let’s look at the Good Neighbor Next Door program.
Good Neighbor Next Door ($100 Down Payment)
The Good Neighbor Next Door program is a special U.S. Department of Housing and
Urban Development or HUD Program. This mortgage program allows home buyers to
purchase homes with just $100 down in approved Good Neighbor Next Door areas.
The program is available to members of law enforcement; firefighters or emergency
medical technicians; and, teachers of pre–K through 12th grade.
Buyers in the Good Neighbor Next Door program may qualify to receive a home
purchase discount of 50%. Seriously! You could get the house for half price. You must
agree to live in the home as your primary residence for 36 months. This means that if
you buy a $200,000 home with a Good Neighbor Next Door program and live in the
house for three years, you will be forgiven $100,000 on your loan and get the home for
Definitely worth a look at, if you are a teacher, law enforcement officer, fire fighter or first
Another fantastic low–down payment program is the VA Home Loan.
VA Home Loan (No Down Payment Required)
If you have served your country, first thank you for your service and second, you have a
great benefit with the VA Home Loan. They may not have told you a lot about the VA
Home Loan in boot camp, but it is a pretty cool benefit that you should definitely
VA Home loans are available to active–duty members of the U.S. military; honorably
discharged service members; and many surviving spouses.
VA home loans are among some of the best low– and no–down payment mortgage
programs available today because they require no down payment whatsoever and
never require the buyer to make a mortgage insurance payment.
The VA Home loan can be used for most any type of home including single–family,
condo, and multi–unit. VA loans, like FHA are assumable by future VA home buyers.
Next let’s look at another great no money down option with the USDA loan.
USDA Loan (No Down Payment Required)
The USDA loan is guaranteed by the U.S. Department of Agriculture and allows for
USDA loans often thought of as “rural” loans, but they are also available in non–rural
areas, including within many U.S. suburbs.
One of the biggest benefits of the USDA loan is that its mortgage rates are often the
lowest of all the low– and no– down payment mortgage programs; and its mortgage
insurance requirements are also pretty low.
In order to qualify for a USDA loan, the income of a home buyer’s household may not
exceed the local media by more than fifteen percent.
Next, let’s look at conventional mortgage options with private mortgage insurance.
Conventional Home Loans with PMI
If you are looking to get into a house with less than 20% down, a conventional home
loan with private mortgage insurance may be an option.
Private mortgage insurance or PMI is a type of mortgage insurance that protects your
lender if you stop making your payments on your loan.
PMI only applies to conventional loans, but other loan programs like, FHA requires
mortgage insurance too, although mortgage insurance on FHA loans operate differently
How much money you put down plays a role in determining how much PMI you’ll have
to pay. A small down payment means a bigger risk for the lender, so your PMI will cost
more. The type of loan you get, like a fixed rate mortgage or adjustable rate mortgage
will also affect how much your PMI will cost as will your credit score.
One of the biggest advantages of PMI is that you may be able to get rid of PMI at some
point in the future. This means that after what you owe on your mortgage is below 80%
of the value of your home you can write to your lender and ask them to remove your
PMI. If you qualify it would mean that your monthly payment would decrease.
PMI gives you the option to get into a home with less than 20% down, which could help
you realize your dream of home ownership!
Finally let’s look at what is called a piggy–back mortgage.
Piggy–Back Mortgage (10% Down Payment)
The “Piggy–Back” Mortgage is a not really a mortgage at all. In fact, it is really two
separate mortgages. It’s called a piggy–back mortgage because, one mortgage is
“piggy–backed” on top of another in order to borrow 90% of a home’s purchase price.
This loan is also sometimes called an “80/10/10 mortgage “. The Piggy–Back mortgage
allows the buyer to put 10% down for a down payment. This loan allows you to avoid
having to pay mortgage insurance. Instead of one mortgage, you have two mortgages.
The first mortgage is typically a conventional loan and is approved at 80% loan to value
of the home’s purchase price.
The second mortgage is typically a home equity line of credit (HELOC) that is 10% of
the loan to value.
Piggy–Back Mortgages are often used by home buyers who plan to pay down or reduce
the balance on their second mortgage within the first 24 months of homeownership.
Whichever loan program works for you, it’s important to remember that you have
options and you may not need to wait to get into your dream home.