If you want to get a low or no down payment mortgage in 2020, you’ve come to the right place! Today we’ll go through 6 different options to help you get what you want so you can save a little money.
But first, what’s a no down payment mortgage exactly? Well, this is the kind of mortgage that excludes both first-time and repeat buyers from putting additional money down for the property, except for the closing costs. This means that when it’s time to close on your new property, you won’t need to make any payments other than the standard closing costs.
This is more relevant now than ever because purchasing a home is a great idea at the moment. Buying a home this year will be a lot more inexpensive compared to next year. Plus, mortgage rates are historically low at the moment, so that’s another great advantage.
When it comes to purchasing a home, many people are deterred by the fact that you apparently have to put 20% down. So, if the home you’re purchasing is $100,000, you’ll have to put down $10,000 upfront. This can be intimidating for many, but you’ll be happy to know there are many programs that are meant to help buyers.
The Misconception of the 20% Down Payment
Before we move onto the 6 different options that can help you get a no down payment mortgage in 2020, let’s address the issue of the 20% down payment. It’s technically not required nowadays, contrary to what many people think. Back in the 1900’s it was indeed required, but it hasn’t been since 1934’s FHA loan.
This common misconception is due to the fact that, in regards to a standard mortgage, if you put down 20%, it means the Private Mortgage Insurance (PMI) won’t be required. Many people hate PMI simply because it costs money, but it exists to protect the lender in case there’s a foreclosure.
Because PMI is available, a home buyer can be approved with less than 20% down payment. Plus, you can eventually remove the PMI. So, considering the rate at which the value of homes is increasing, a buyer could put a down payment of only 3% and only have to pay for PMI for less than four years.
6 Ways to Get a Low/No Down Payment Mortgage in 2020
1. Low Down Payment Mortgage: FHA Loan
FHA loans are insured in by the Federal Housing Association, and there’s a list of standards for loans to be insured by them. When a financial institution issues a loan that’s based on these guidelines, the FHA will insure it against loss. FHA loans are well-known for their unique approach to down payments.
For example, borrowers with low credit scores are still eligible for an FHA loan if they have a good explanation for it. If this is the case for you, make sure you turn to credit experts so you can have a good explanation or to see if you can fix your credit in the first place.
FHA loans are great because your credit requirement is only 500, your down payment, which is only 3.5% can be made entirely from gift funds, and mortgage insurance premiums are paid upfront at closing on the house, and then on a monthly basis after that.
2. Low Down Payment Mortgage: The HomeReady Mortgage
This low down payment mortgage was originally meant for multi-generational households that required help being approved for mortgage financing. However, it’s not necessary to be a part of a multi-generational household if you qualify for this kind of mortgage.
The HomeReady mortgage is quite unique because it provides a below market mortgage rate at 3%, and reduced mortgage insurance costs. Another great thing about this mortgage is that it takes into consideration the income of everyone in the household, so if you live with your parents or have kids that are working, you can use their income to get your mortgage approved.
3. Low Down Payment Mortgage: Conventional Loan 97
The Conventional Loan 97 is given by Freddie Mac and Fannie Mae, and it only requires a 3% down payment. But that’s not the only benefit this type of loan provides, because it also allows you to make the entire down payment with funds that have been gifted by someone who’s related either by blood, legal guardianship, marriage or given by a fiancee or fiance, and by domestic partnership.
You can qualify for a Conventional Loan 97 if the loan you’re requiring doesn’t exceed $484,350 regardless of the market at the moment, if the mortgage is a fixed rate mortgage, and if the property is not a multi-home unit. This is a great low down payment mortgage option that’s quite obtainable for most.
4. Low Down Payment Mortgage: The “Piggyback Loan” (10% down)
The Piggyback Loan was created for buyers that have a credit score that’s above-average. If you don’t have an above-average credit score, you can turn to credit experts to discuss your credit and see where you stand. The Piggyback Loan is actually two loans in one, which allow you lower payments and higher flexibility.
The loan follows an 80/10/10 structure, where buyers provide 10% of the down payment when they close the home. What this means is 90% of the sale price of the property will be in the mortgage. But instead of giving the full 90% mortgage loan, it’s split into two parts; one of 80 and one of 10. The first represents 80% of the purchase price of the home and it’s a conventional loan offered at the current mortgage rates. And the second one represents 10% of the purchase price of the home, and it’s a home equity loan or a home equity line of credit.
5. No Down Payment Mortgage: VA Loans
If you are or have been in the US Military or are a surviving spouse, this loan will be the right choice for you. This no down payment program is not too different from FHA loans because the agency guarantees the repayment to the lender.
VA loans is great for many reasons, such as: there’s no mortgage insurance required, intermittent occupancy is allowed, bankruptcy and other negative credit won’t disqualify you (but it’s best if you have good credit), and the loan can be up to $726,525 for high-cost areas.
6. No Down Payment Mortgage: USDA Loans
USDA Loans offer 100% mortgage as well, without having to be a part of the military. It’s known nowadays as the Rural Housing Loan and it’s meant to reach low to moderate income buyers in rural or suburban areas. However, the loan is still eligible for modern suburban towns such as Virginia, Ohio, Columbus, and other suburbs in major cities as well.
USDA Loans are a good option for many reasons, including low rates, monthly mortgage insurance, a guarantee fee added to the balance of the loan at closing, and it also allows for the inclusion of eligible home improvements and repairs. Overall, it’s a great no down payment option that you can consider.
FAQ About Mortgage Down Payments
1. Can I buy a house without putting money down?
Yes, it is indeed possible to purchase a home without having to put down any payments if you apply for a no down payment mortgage. A mortgage lender can help you navigate the no down payment mortgage options available so you can do this effectively.
2. Can cash gift be used as down payment?
Of course cash gift can be used for this purpose. Once the cash if given to you, the money becomes yours, which means you can use it however you see fit. However, you do need to go through certain procedures when you receive a cash gift so you don’t have any issues using the money.
You need to make sure you’ve received your cash gift as a wire transfer, a personal check or a cashier’s check. You’ll also need the paper records of the cash gift, photocopies of the checks and of the deposit slips as well. This will be useful when the lender wants to verify the cash was actually a gift and not a loan in disguise. So, make sure you do this so you can use your cash gift freely!
3. Is reverse mortgage a good idea?
If you’re eligible for reverse mortgage, it will put cash in your pockets, it doesn’t matter if you use it as financial assistance, for retirement, or just for spending. You can check whether or not you’re eligible online quickly and easily, and we recommend you do that.
4. What are the FHA down payment assistance programs?
The Federal Housing Assistance (FHA) programs are available for 87% of the single family buyers out there. The programs available will vary according to the state, so you will definitely need to talk to a mortgage lender to understand what program you might be eligible for. The average person who uses this kind of down payment assistance receives around $11,000.
5. Can I get a home buyer grant?
Yes, of course you can get a home buyer grant! They’re available for home buyers in the US and everyone’s eligible to apply. Home buyer grants are better known as Down Payment Assistance (DPA) programs, and they’re widely available for all home buyers. Have a talk with your mortgage lender so they can help you decide which DPA program will suit you best. Even though these grants are available for 87% of home buyers, only 10% applies. Don’t make that mistake!
6. What are the requirements for an FHA loan?
The requirements for an FHA loan are as follows:
- A minimum FICO credit score of 500.
- A verifiable income with paystubs, W-2 statements, and/or federal tax returns.
- No history of bankruptcy, foreclosure, or short sale within the last year.
- The entirety of federal debt must be paid.
7. Is it beneficial to put more money down?
Yes, it is beneficial. As long as you don’t use up all your savings or go bankrupt to do so. When you put more money down, the mortgage will be less, which means the monthly payment fee will be smaller. Also, your PMI will cancel in less years than average.
8. Do I still have to pay PMI with a low down payment?
When you make a low down payment, it’s more likely you’ll have to pay PMI, but it doesn’t necessarily mean you will have to. In fact, it will depend on the kind of loan you get. We recommend you talk to your mortgage lender to figure this out.
9. If I make a small down payment, what would be my lender fees?
Your lender fees will not depend on the size of your down payment; they will depend on the services you require!
10. What is the lowest down payment for a mortgage?
The lowest down payment for a mortgage will depend on the kind of loan. For example, the FHA loan is at 3.5%, the Conventional 97 loan is at 3%, the HomeReady mortgage is at 3%, and the VA and USDA loans are at 0%.
11. How can I provide a down payment?
There are many ways you can provide a down payment and lenders tend to be flexible with the requirements as well. If this is the first time you’re purchasing a home, you can use your savings or checking account. If you’re a repeat buyer, you can provide the down payment from the sale of your previous home. But you can also do so with assistance programs, no down payment programs, cash gift, or even a 401k or IRA.
However you decide to provide your down payment, always keep a paper trail of whatever method you’ve chosen. You want to have a clear source for the money, otherwise your lender will have an issue with it and not accept the down payment you make.