How to Buy a Home with Little or No Money Down

January 27, 2023

By Nikkael Home Loans

True or false: you need at least a 20% down payment to purchase a home.

The answer, thankfully, is false — home buyers can take advantage of multiple loan options that let them buy homes without the traditional 20% down payment. Here’s how to buy a home with no money down, along with some loan programs that require minimal down payments.

How to Buy a Home with No Money Down

Some of the best loan programs allow you to buy a house with no money down including USDA loans and VA loans. However, each loan type comes with its terms and requirements.

USDA Loans

The U.S. Department of Agriculture backs loans for properties in qualifying rural or suburban areas. USDA loans don't require any down payment, though buyers need a credit score of 620 or higher to qualify.

VA Loans

Are you a current or active member of the U.S. military? If so, you qualify for a loan backed by the U.S. Department of Veterans Affairs or a VA loan, which offers affordable loans to military members, veterans, and their spouses.

While the government backs these loans, they're offered through private lenders, each of whom can set their own minimum credit requirements. Some lenders offer VA loans for those with a credit score as low as 580. If you're considering a VA loan, shopping around to find the right lender is a good idea.

Loan Programs that Require Small Down Payments

Other loan programs are available for a small down payment, though the exact amount depends on your lender and financial situation.

Conventional Loans (3% Down)

Believe it or not, some conventional loans are available with as little as 3% down. Of course, this depends on your lender, who will make a final determination based on your financial history.

Keep in mind that if you buy a house for less than 20% down, you'll have to pay something called "Private Mortgage Insurance" (PMI), which can range between 0.5% and 2% of the original purchase price. Lenders usually roll your PMI payments into your monthly mortgage rates, so make sure you account for this when budgeting.

FHA Loans (3.5%–10%)

Loans backed by the Federal Housing Administration require a 10% down payment and a credit score as low as 500. But if your credit score is 580 or above, you can secure an FHA loan with a 3.5% down payment.

Again, paying less than 20% will require you to make PMI payments, so don’t forget to account for this factor when making your final decision.

Do You Have to Pay Private Mortgage Insurance?

Private mortgage insurance (PMI) is typically required when you buy a home with less than 20% down. PMI payments are therefore required for conventional loans and FHA loans. However, VA loans and USDA loans don’t require PMI payments.

Find the Right Approach

At Nikkael Home Loans, we don’t believe in a one-size-fits-all approach to mortgage lending. We want to work with you to find a solution that fits your unique financial situation. Contact us to discuss your options or request rates online today to get started.

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