If you want to buy a house but don’t have a lot of money for a down payment, don’t lose heart. Your dream of homeownership is still attainable.
Homebuyers who can’t come up with big down-payment money have options. There are mortgages available for a low down payment or even no down payment.
Check out five options for mortgages with little to no money down.
1. No money down: Department of Veterans Affairs
The VA guarantees purchase mortgages with no down payment required for qualified veterans, active-duty service members and certain members of the National Guard and Reserves.
Private lenders originate VA loans, which the VA guarantees. There is no mortgage insurance. The borrower pays a funding fee, which can be rolled into the loan amount.
For purchase and construction loans, the VA funding fee varies, depending on the size of the down payment, whether the borrower served or serves in the regular military, Reserves or National Guard, and whether it’s the veteran’s first VA loan or a subsequent loan. The funding fee can be as low as 1.25 percent or as high as 3.3 percent.
For first-time buyers making no down payment, the funding fee is 2.15 percent for members or veterans of the regular military, and 2.4 percent for those who qualify through their service in the Reserves or National Guard.
Comparison shop for home loans to find the best mortgage rate.
2. No money down: Navy Federal Credit Union
Navy Federal, the nation’s largest credit union in assets and membership, offers 100 percent financing to qualified members who buy primary homes. Navy Federal eligibility is restricted to members of the military, some civilian employees of the military and U.S. Department of Defense, and family members.
The credit union’s zero-down program is similar to the VA’s, though Navy Federal’s funding fee is 1.75 percent.
3. No money down: USDA
The USDA’s Rural Development mortgage guarantee program is very popular and sometimes runs out of money before the fiscal year ends.
Many borrowers are surprised to learn that Rural Development loans aren’t limited to farmland. The U.S. Department of Agriculture has maps on its website that highlight eligible areas.
Besides geographical limits, the USDA program has restrictions on household income, and it is intended for first-time buyers, although there are exceptions.
The USDA mortgage comes from a bank, and there is no mortgage insurance. Instead, the USDA levies a 1 percent upfront guarantee fee, which can be rolled into the loan amount, and an annual guarantee fee of 0.35 percent of the loan balance.
4. Little down: Buy private mortgage insurance
Qualified borrowers can make down payments as low as 3 percent with private mortgage insurance, or PMI. For most borrowers, PMI costs less than Federal Housing Administration (FHA) mortgage insurance. But PMI has stricter credit requirements.
PMI has another edge over FHA: Once your mortgage balance is under 80 percent of the home’s value, you can cancel PMI. You can’t get rid of FHA insurance unless you refinance into a non-FHA loan.
5. Little down: Federal Housing Administration
With a minimum down payment of 3.5 percent, an FHA loan is the low-down-payment option for people with tainted credit histories.
The FHA charges an upfront mortgage insurance premium of 1.75 percent of the mortgage amount. On a 30-year loan with the minimum down payment, there’s an annual premium of 0.8 percent of the mortgage amount, or $800 a year for each $100,000 borrowed — $66.67 a month for a $100,000 loan.