Top Picks: Low or No Down Payment Lenders
|Lender||Minimum Credit Score||Minimum Down Payment||Visit Site|
|500+||0%-20% based on loan type|
|620+ for most loans||3.5%||View Rates|
|620+ for some loans||0% for some loans|
|620 for most loans||20% for lowest rate|
What Is a Down Payment, and How Does It Work?
A down payment is the part of the home purchase price that you don't take a loan for--you pay that portion, generally ranging from 0%-30%, upfront at the time of purchase. Take your standard 10% down payment, for a $300,000 house. This requires paying $30,000 up front and financing the rest. Over the term of a 30-year fixed mortgage with 4% interest, you would have a monthly mortgage payment of $1,788.One thing to keep in mind is that the higher the down payment, the lower the monthly payment over the term of the loan. You may also qualify for a lower interest rate with a higher down payment. For instance, if you put down 20% on that same $300,000 house, your monthly payment would be $1,558. Conversely, if you put down zero, your payment would be higher - $2,145 per month. You may be required to have a higher credit score and pay Private Mortgage Insurance in order to qualify for a low down payment loan, which can exclude some borrowers and add to the costs.
What Is a No Down Payment Mortgage?
Low or zero down payment mortgages are mortgages with a down payment of 0-5%, but they often require you to have good credit and the income to make the monthly payments. You may also be required to pay for private mortgage insurance.
Many enter adulthood assuming that if they want a house, they’re going to need a hefty down payment. But while paying a 20% down payment is a great way to secure affordable monthly payments, it’s by no means a requirement. In fact, only 45% of home buyers pay 20% or more down, and 60% of first-time home buyers only put down 6% or less before they get in the door and start arranging the furniture.
Types of Low Down Payment Loans
|Loan Type||Down Payment||Credit Score|
How Can You Buy a House with No Down Payment?
There are a number of US government programs that can assist new home buyers, and it's worth taking a look to see if they can work for you and if you fit the requirements.
These loans are insured by the FHA and allow first time homebuyers to take mortgages with down payments of 3.5% if you have a credit score of 580 or higher. Because of the perceived higher risk, you will be required to pay mortgage insurance with an FHA loan. This is typically 1.75% of the loan amount upfront plus .85 percent annually (paid monthly). For a $300,000 mortgage this would be $5,250 up front plus monthly payments of $212.50.
VA home loans, for current or former military personnel, allow you to finance 100% of the cost of the house with zero down payment. There is also no monthly mortgage insurance, but most VA loan recipients will be required to pay a funding fee of 2.15% if you put zero down. And while VA home loans tend to be more lenient about credit, your credit score can affect your interest rate.
The United States Department of Agriculture (USDA) offers low-interest, fixed-rate loans for single family housing in rural areas. These loans do not require a down payment, interest can be as low as 1%, and you can sign up for a payback period as long as 38 years. That said, you do have to meet a number of requirements, including that you are currently without “decent, safe and sanitary housing,” and that you’re looking to buy in a rural area with 35,000 residents or less.
These are loans that are financed up to 97% as long as you have credit of 620 or higher. They are not funded through the government and typically while they have a slightly higher interest rate this is offset by the lower down payment. Other types of loans that can get you into a new home without requiring a large down payment include My Community, Home Ready, Piggyback Loans, and HomePath Ready Buyer. Like the other low down payment loans on our chart, your credit history and financial standing can affect your likelihood of receiving a loan. You also may be required to buy private mortgage insurance.
The Top 5 Lenders
Minimum down payment: 0%-20% based on loan type.
Since 1998, tens of millions of people have used LendingTree to find online loans, including personal loans, mortgages, and mortgage refinance loans. The website is built to be easy to use and within minutes you can compare loans from a wide variety of lenders. With the lenders competing for your business, you should have a better chance of getting a loan that works with your budget. The company doesn’t charge any fees for connecting you with lenders, and can provide you with free credit scoring. If you aren’t able to pay much of a down payment, you can still find a loan with LendingTree, which is known for helping people with less than ideal credit find loans. Keep in mind though, that with a lower down payment, you’ll have a higher principal to pay off.
Minimum down payment: 3.5%
Quicken offers a range of mortgage and refinancing loans, including reverse mortgages, specialist VA and USDA mortgages, refinancing options, and a unique YOURgage option. Quicken uses technology to guide borrowers and complete the loan approval process quickly. Quicken offers home equity loans for almost every scenario so that you can find a suitable home financing package speedily.
Minimum down payment: 0% for some loans
Rocket Mortgage is fully designed for digital natives with an advanced and smooth loan platform that keeps the entire process online and on smartphones. There are plenty of mortgage options and rates are constantly updated to keep borrowers on top of the details. The site design and apps are sleek and easy to use with excellent customer service and automation to speed up the loan process.
Minimum down payment: 3.5%
LoanDepot offers homebuyers a portal to compare mortgage loan offers. You can access basic mortgage information without signing up for an account, and it’s easy to update your information and view additional loan offers in a simple and straightforward manner. A variety of loans are available to search, including hard-to-find 10- and 20-year fixed loans.
Minimum down payment: 20% for lowest rate
Credible.com’s mortgage marketplace builds on the success of the company's marketplaces for student loans, student loan refinancing, and personal loans, which have facilitated more than $1.6 billion in loans. Credible’s integrations with lenders and credit bureaus make it a snap to compare actual, prequalified rates across multiple lenders without impacting your credit score, and you don’t have to worry that your personal information will be shared with any lender other than the one you choose to work with. Once you see an option you like, Credible’s streamlined process and licensed loan officers provide a seamless experience all the way to closing.
Pros and Cons of a Low or No Down Payment Mortgage
|Don't have to save as much for a down payment||Higher interest rate|
|Get into a house quicker and stop paying rent||higher monthly payment|
|Cash reserves stay liquid in case of emergencies||High closing costs and possible PMI|
What is Private Mortgage Insurance?
If you're making a down payment of less than 20 percent, the lender will see you as a higher risk borrower, and most likely require you to purchase private mortgage insurance (PMI). This is a security measure the lender puts in place to protect them in case you end up defaulting on the loan. The fees vary for PMI, but it can be a significant expense for a borrower. The cost can range from about .3 to 1.5 percent of the original loan amount annually, though your credit score can affect this. How does this play out? Let's say you have a $300,000 mortgage and PMI set at 1%. This comes out to $3,000 per year, or an extra $250 per month on top of your loan payment. On the one hand, this is a significant expense to tack on each month, at the same time, it helps all types of people secure mortgages when otherwise they may have been seen as too high risk.
Why Sign up for a No or Low Down Payment Mortgage?
The answer to this may be familiar - it allows you to get a mortgage without having to first save up the money necessary for a large down payment. The down payment is often the biggest unfinanced, out of pocket expense people make in their lives, and if your expenses are high, it can be difficult to put enough away every month to save up for a 20% or even 10% mortgage.
- Buy sooner: If you don't have to save up for a down payment it means you can sign a mortgage that much sooner, allowing you to take advantage of today's friendly interest rates and a hot real estate market with prices and rates that have been steadily increasing. By the time you manage to save up for a down payment, they may be even higher than the rates you'll receive now for your low down payment mortgage.
- Save your resources: It can take creativity to get a down payment together. This can mean borrowing money from family or friends, or cashing out a retirement fund or a stock portfolio - none of which are ideal because they can drain your emergency resources. It’s wise to have money stored away in a rainy day fund, and if you put all that money down on a house, you won’t have those liquid funds to count on if the need arises.
The Cons of a No Down Payment Mortgage
If you’re not putting money down, a lender may see you as a high-risk borrower and require that you secure mortgage insurance, which can be a significant monthly expense. In addition, with a low or zero down payment, your mortgage will probably come with a higher interest rate that can add up over the lifetime of the loan. Origination fees and closing costs can also be higher, and all of these factors can be affected by your credit score. If you don't put any money down, the amount you finance will be higher. This will translate to a higher monthly mortgage payment. In addition, since you didn’t put any money down, you will have zero equity at the beginning of the loan, and it will take you longer to accrue it and make you more susceptible to downturns in the housing market.
So, Should You Take a No Down Payment Mortgage?
A zero or low down payment mortgage can be an option for borrowers who are looking to get into a house of their own, but are having trouble putting together the funds needed to make it happen. These loans can come with higher interest, fees, and require the purchase of mortgage insurance, but for those of us who are having trouble jumping that first hurdle to homeownership, a low down payment loan can make it all come together.
Still can't decide? Feel free to check out more reviews and articles to discover the best mortgage lenders for you.