Buying the first home is an important milestone in life. But often together with excitement and thrill comes the anxiety and the challenge of coming up with the down payment. A lot of first-time buyers find it difficult to accumulate a substantial amount of money to secure a loan. However, not all of them know that there are ways to help you buy a home with little or no money down.
In the most favorable conditions, you can pay as low as a 3-5% down payment on the property in the case of a conventional mortgage. With some other types of mortgages, you’ll be asked to pay around 10% of the purchase amount.
How to Qualify for a Low-Down-Payment Mortgage
Getting a low-down-payment mortgage can be a real saver for first-time buyers with a tight budget. However, to obtain such a mortgage they need to fit a set of specific requirements:
- Credit score, which shows your trustworthiness and reflects your financial history. Different programs have different minimum score requirements.
- Debt-to-income (DTI) ratio is a proportion of your monthly debt payments to your monthly income. Here, the lower, the better.
- Income and employment verification — proof of your stable income and employment history.
- Assets and reserves — the additional property or capital you may own to cover expenses in case you can’t pay the mortgage payments.
- Mortgage insurance is a must for some low-down-payment mortgage programs, which helps to protect the lender.
Of course, there are also other factors that can affect the interest rate and fees for the mortgage. For example, the loan term and type, loan amount, market state, property conditions, and geographical location can also increase or decrease the down payment amount.
What Are the Best Low-Down-Payment Mortgage Programs and Lenders
Some low-down-payment mortgage programs are backed by the government, and some — by specific lenders. Each one of them has some benefits and drawbacks that buyers should analyze and compare before deciding on a loan. Some government-backed programs, like VA or USDA, even allow specific categories like veterans and their family members to pay zero down payment.
These programs are more specific for the US market but can give you an idea of the requirements needed for buying property around the world like real estate in Dubai.
The list of reliable lenders to offer low-down-payment programs is quite extensive. It includes:
- PenFed Credit Union — offers a variety of mortgage options.
- NBKC Bank Home Loans — provide a lot of loan options and have useful tools on their website.
- New American Funding — great refinancing options.
- Wells Fargo — one of the largest mortgage lenders in the US.
- Rocket Mortgage — offers FHA and conventional loans with low down payment.
Let’s see how you can apply for these programs and use them to purchase your dream home.
How to Find and Apply for Down Payment Assistance
For some buyers, especially for the younger population, gathering even a smaller down payment can be quite challenging. According to the research done by the National Association of Realtors in 2022, over 29% of millennials received down payment help in the form of a loan or a gift. A lot of people also needed help with the closing costs and mortgage insurance.
A viable choice here is using down payment assistance. There are different levels of such assistance, including:
- Federal assistance and State assistance can be found on the U.S. Department of Housing and Urban Development’s website.
- Local Government Programs and Grants may be available in your area, so you can request local housing authorities.
- Non-profit organizations like Habitat for Humanity in different states, like the one in LA.
- Employer-based programs can be in place to support employees in property purchases.
- Community Help is provided as well by the local development organizations.
These programs provide financial support for homebuyers that helps them in paying the down payment or the closing costs for the property.
How to Save for a Down Payment Faster
Let’s say you’re accumulating money for the average first-time buyer down payment, which is around 6%. If you don’t want to use financial assistance, there are still some strategies you can use to save money for the upfront payment faster.
- Set a realistic goal and a timeline with the milestones you want to achieve.
- Track your expenses by creating a budget and sticking to it.
- Minimize unnecessary spending by cutting some services, subscriptions, and products you don’t need.
- Reduce debt payments by paying the lower-interest debt first to free up some funds.
- Explore some options to boost your income at least for a while.
- Set up automatic transfers to the savings account or a deposit so you can’t withdraw them at any given time.
Additionally, you can engage your family in saving money — if everyone chips in and saves some costs, it would be much easier to gather the needed amount.
There are several options for decreasing the down payment amount to 6% of the purchase price on average. It’s a lot easier to accumulate such an amount by using saving strategies or getting down payment assistance. You can also apply for low-down-payment mortgage programs and loans from government and private providers.
However, in most cases, you’ll need to qualify for requirements like a certain credit score or debt-to-income ratio and buy mortgage insurance. Still, there are options and tools to help you with the search and choosing the right program to buy the house of your dreams.