Even with the current strict rules regarding mortgages, it is still possible to buy a home with a small down payment. In some cases it is actually possible to purchase with no down payment. Here is a brief summary of the different mortgages currently available.
One way for people to purchase a home without any down payment is with the United States Department of Agriculture Home Loan program, more commonly called the USDA loan. This loan has a few requirements regarding the applicant’s total household income and it is only for homes located in designated rural areas. However, the program will allow borrowers to take out a loan equal to the home’s appraised value. This amount can be used to buy the home and cover the closing costs.
Don’t be alarmed by the term rural. There are many places across the whole country that meets the USDA’s requirements. In fact, entire counties in certain states are designated rural, which means any home within that county’s limit will be eligible for the loan program.
For qualifying veterans, active duty personnel and surviving spouses of veterans the Veterans Administration offers a wonderful home loan. This loan has set requirements about the debt to income ratio for the borrower as well as guidelines for disposable income. For applicants that meet the VA’s eligibility, a home can be bought with no down payment. Even better, unlike conventional loans and the FHA mortgage, a VA mortgage does not require the homeowner to pay private mortgage insurance. The VA loan does not focus so much on the applicant’s credit score like some programs. Instead, the underwriter looks more closely at the applicant’s payment history and debt patterns.
This is by far the most popular option for borrowers who wish to buy a home with a low down payment. While the VA loan is limited to qualifying applicants and the USDA loan is geared towards properties in select areas, the FHA loan is open to a much wider range of potential homeowners. The majority of homes meet the guidelines for FHA loans, regardless of their location. And the FHA guidelines are not as strict as conventional loans. Although this program does not allow for 100% financing, FHA only requires a modest 3.5%* down payment.
- Important Disclosure
*3.5% down payment on $193,000, 4.125% / 5.713% APR, 640 FICO, 30-year fixed rate mortgage. Mortgage insurance is required. Rates subject to change. Subject to credit approval.
The VA mortgage program is available to eligible Veterans only.
For all USDA mortgage loans, property and income restrictions apply.