Owning your home is one of the biggest American dreams. Once you reach adulthood and start in the workforce, one of the things you work for is to earn enough money to put a down payment on a forever home.

When you research online, the common consensus is that 20% is a reasonable down payment to put on a house. The median home price in the United States is around $350,000, so that’s $70,000 cash you need to have in your pocket before you can even think of buying. 

But did you know that you could buy a house without a down payment? Some loan plans will allow you to do that, and there are options for down payments as low as 3% too!

The Basics of Home Financing

Before you can even make an offer on a home available on the market, you need to speak with mortgage lenders to know what amount you can afford. Standard practice is that you have to pay a down payment at closing. Because you’ve already spent money on property, lenders are assured that you will keep up with your mortgage payments.

Unfortunately, down payments are one of the biggest hurdles for potential homeowners. It can be difficult for people to come up with the required cash—which then causes many to simply give up on their dreams of owning their own home.

Government-Backed Loans

A zero-down mortgage is a loan you can get without paying a down payment. One way you can do that is to opt for a government-backed loan. The federal government insures these loans, so if you stop paying your mortgage, your lender is not left in the lurch.

The two types of government-sponsored loans are:

USDA Loan

The United States Department of Agriculture (USDA) has a loan program that encourages development in suburban and rural areas. USDA loans have 0% down payment and lower mortgage fees.

USDA loan requirements include: 

  • Home is located in a rural or suburban area
  • Combined gross income of less than 115% of the median income of the county
  • A debt-to-income ratio below 45%
  • FICO Score at least 640

VA Loan 

The Department of Veteran Affairs (VA) offers 0% down payment mortgage loans to veterans, spouses of deceased veterans, active-duty service members, and members of the National Guard.

VA Loan requirements include:

  • Served 90 consecutive days during wartime
  • Served 181 consecutive days during peacetime
  • Served over six years in the National Guard or Reserves
  • Spouse of a service member who died in the line of duty or from an injury related to the service
  • A credit score of 640

 Low Down Payment Options

If you don’t qualify for USDA or VA loans, the following loan programs will let you buy a house with very low down payments:

Federal Housing Administration Loan (FHA) – If your credit score is 580 or higher, you can get a standard FHA loan with a 3.5% down payment. If your credit score is between 500-579, you can get a 10% down payment loan.

Conventional Mortgage Loan – Not all mortgage loans require a 20% down payment. Some lenders offer conventional loans with private mortgage insurance (PMI) for down payments from 5% to 15%. You can pay for PMI through a monthly premium added to your monthly mortgage.

Conclusion

The 20% down payment threshold is common parlance in the real estate market, and many potential homeowners are held back from buying their first home because of that intimidating amount. Thankfully, there are multiple options for low down payment mortgage loans through the government or even conventional loans with PMI attached.

Our team at Performance Mortgage LLC provides clients with the highest quality financial services available in the New Orleans and Chalmette areas. We offer lending solutions tailored specifically for your borrowing needs, and we will help match you with the right mortgage with the lowest rates. Contact us today to find out how we can help you!