How to get a mortgage with less than 20% down

It may seem unheard of, but I assure you it is not! Anyone telling you that the ONLY way to buy a home is with 20% down is either unaware of the various other ways, or is simply lying. It is not possible in every case, but in many, it is totally possible, and quite common, to buy with less than 20% down. Here are some of the popular ways to get a mortgage with less than 20% down.

First, let me say that you don’t need tons of money saved up to buy a home, but you do need income that can be verified as steady, a good repayment history, and decent credit. The better your credit, the better interest rates you’ll have access to, and in most cases, the better loan terms in general. Considering a 20% down payment on the current average cost of a new home in the United States’ hottest markets could put the average first time home buyer in a tough spot, it’s nice to know it home ownership is within reach even without those funds. 

Here are 5 ways to get a mortgage with less than 20% down 

#1 – Down payment assistance or grant programs

These will vary depending on where you are in the US, but there are many options to choose from overall. Typically, you’ll find the programs at a local or state level, but sometimes they are specific to lenders. If you can get one of these, it may be a great way to keep the cash on hand in your new home, rather than putting it down on your property. Some of these down payment assistance or grant programs do have certain stipulations, whether income requirements, repayment over time, partial down, or classes but can be worth it if you really wanted to save yourself a down payment of any sort. Another assistance program to note, is that you are absolutely allowed to use funds from family or friends (such as gifts or loans) to cover your down payment. You can also in some cases use funds from your retirement plan to purchase your home!

#2 – Use a rural USDA loan

A USDA loan is a loan that is specific to markets where the population of the city is under a certain size, and also has income requirements for the different types of USDA loans, such as subsidized or unsubsidized. In order to determine whether it is an option for you, check out their loan tools to see whether you could qualify for the types of property you’d be interested in. Another helpful tool is to see which areas even qualify for the programs. That can be done by entering an address in the map tool, after selecting the loan type on the previous link. You can start an application using the application tool (this does not require personal information) to get an idea which program you can potentially qualify for based on your income and expenses. A lender would be the one to actually run the application for you, and my preferred lender is Sabrina Lewis with Open Mortgage for the Oklahoma area.

#3 – Use a VA loan

A VA loan is a loan through the Veterans Administration. To qualify, you must be a U.S. military veteran, or the surviving spouse of a veteran who died in service or from a service-related disability. The option to utilize this loan is reserved for those who qualify, and are very helpful as veterans or beneficiaries utilizing this can get a mortgage with 0% down while also avoiding PMI! If you’re an eligible veteran or beneficiary, check with a VA approved lender like Sabrina, to see if you are ready to utilize this benefit. 

#4 – Use an FHA loan

An FHA loan is for first time home buyers, and the down payment required is only 3.5% and is usually a great option for those with lower credit scores or lower down payment capabilities. In some cases, your locality may have a way to set up a down payment assistance program within your loan. In some cases, they will tack the down payment onto the loan itself, thus adding the down payment into the loan. 

#5 – Use a conventional loan

…yep! Saved that one for the end, but you do NOT need to put 20% down, even with a conventional loan. Many buyers will choose to put more down when they can, but the minimum required for well qualified buyers can be as low as 3% in some cases! Depending on your specific situation, the lender you choose may require more of a down payment, or may charge points on the loan. If someone is warning you not to buy a home until you have 20% saved, send them this post because that is old news… Lenders and local markets have so many options these days!

So there it is – 5 ways to get a mortgage with less than 20% down. These may not work for everyone, but if you do some digging in your local market and talk to lenders, you may be surprised at what you find that’s available to you. There are many more specific down payment assistance and grant options out there, so shop around for a good lender and make sure you’ve explored all options before you make a decision on a mortgage! If you have more questions as a first time home buyer, check out our First Time Home Buyer FAQs blog post series – start with part one here.

Having the right Realtor at your side through the process is also a great way to be sure that you’re able to have confidence in the buying process. If you’re looking to buy, sell or invest in the Tulsa area or Northeast Oklahoma, I’d love to serve you. Having me represent you as a buyer is completely free! You can reach me here and set up to jump on a phone or Zoom call!

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