How to Get a Lower Down Payment on a House

One of the biggest and most common causes of anxiety among prospective homeowners is the dreaded Down Payment of Doom. It’s one of the first obstacles you’re likely to find standing between you and your dream house, and it can often feel like the most formidable one to boot.

Want to know a secret, though? As towering as that obstacle may seem when you’re going at it on your own, with the right allies by your side it becomes a whole lot smaller.

Instead of being a Lone Ranger, be a Loan Ranger! Here are a few trusty sidekicks who can help you turn that Down Payment of Doom into a Down Payment of Manageable Affordability:

 

Pay 0% down with VA and USDA loans

VA loans are provided by private lenders but guaranteed by the U.S. Department of Veteran Affairs. They are available to members of the U.S. Army, Air Force, Navy, Coast Guard, and National Guard who have served over 180 days of active service duty overall or 90 days consecutively.

Similarly, USDA loans are provided by private lenders but guaranteed by the U.S. Department of Agriculture. They are available for those looking at homes in eligible rural areas.

 

Pay 3% down with Conventional 97 and HomeReady loans

A variation on Conventional loans (the usual 20% down payment ones provided by private sellers but not guaranteed by any government entity), Conventional 97 loans offer a lower down payment under very specific guidelines: the lending limit is around $500,000, mortgage payments are restricted to a fixed rate, and the loan can only be used to purchase a single-unit home. One advantage of Conventional 97 loans, though, is that they allow for their down payments to be covered by funds gifted to the borrower from any relative by blood or marriage.

HomeReady loans, meanwhile, achieve their low down payments by calculating the income of all individuals living in the home, not just the primary borrower. In other words, multigenerational households where parents and their children all contribute to overall living expenses can qualify by adding everyone’s individual incomes together.

 

Pay 3.5% down with FHA loans

Among the most popular mortgages for borrowers looking for a low down payment, FHA loans are loans provided by private lenders but guaranteed by the Federal Housing Administration. They are available to borrowers with a minimum credit score of just 580, but they do require non-removable private mortgage insurance, typically at a rate of around 0.085%.

P.S. Here’s a few more helpful tips…

  • Before anything else, figure out what you can afford with a house payment calculator.
  • Paying for private mortgage insurance (which protects lenders in the event of borrower default) may seem like an unnecessary extra cost, but it has the benefit of lowering your down payment, and can itself be removed over time (except in the case of FHA loans).
  • Believe it or not, a larger down payment isn’t always a bad thing. If you can afford it, paying more now will significantly decrease the cost of your future monthly payments.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.