Down payment options for first-time homebuyers

The path to homeownership is more attainable with these low- or no-down-payment options

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If you’re struggling to save for a mortgage down payment, consider these low- or no-down-payment options. (Shutterstock)

Saving for a down payment is a substantial barrier to homeownership, particularly for people of color and those burdened by student debt, according to a Center for Responsible Lending report. This is no surprise, as it can take years to save for a 20% down payment.

The good news is you have options to greatly reduce or even eliminate the cost of a down payment. Keep reading to learn about strategies and programs for reducing your down payment.

Explore your home loan options by using Credible to compare current rates and lenders.

What is a mortgage down payment?

A down payment is the amount of cash you pay up front at closing to purchase a home. It’s typically expressed as a percentage of the purchase price and shows creditors that you’re a serious homebuyer. A 20% down payment is usually required for a down payment on a conventional mortgage.

Your mortgage will cover the rest of the purchase price, so the larger down payment you make, the smaller your mortgage will be. But a lower down payment requirement — or no down payment at all — can allow you to become a homeowner sooner.


How to come up with a down payment

If you’d like to turn your dream of homeownership into a reality, here are some ways to fund a down payment: 

  • Save up. You can put a certain amount of money from each paycheck into a savings account and save for a down payment. To speed up the process, consider picking up a side hustle or part-time job.
  • Look into state and local down payment assistance programs. Many states and local municipalities offer down payment assistance programs, usually for first-time homebuyers. You can often receive help with your down payment in the form of a grant or forgivable loan.
  • Tap your retirement account. If you have sufficient funds in your 401(k), Roth IRA, or other retirement account, you can pull from them to pay for a down payment. Just keep in mind that if you go this route, you may face penalties and derail your retirement goals.
  • Ask family or friends. Let your loved ones know you hope to buy a house in the near future. They may be generous and gift you a portion or all of your down payment.

To find a great rate, use Credible. Credible can show you current mortgage rates from multiple mortgage lenders and help you make an informed decision regarding your home loan.

2 options for no-down-payment mortgages

Two prominent government programs allow you to get a mortgage with no down payment:

  • VA loans — Backed by the Department of Veterans Affairs, VA loans are available to current and former military members or surviving spouses. In addition to no down payment, these loans offer competitive rates and limited closing costs. But you’ll have to pay a funding fee.
  • USDA loans — The United States Department of Agriculture offers USDA home loans, which might be an option if you buy a home in a rural area and meet certain income limits. As long as you qualify, you won’t have to put any money down.


4 options for low down payments

If you’re looking for low-down-payment options, consider the following:

  • State programs — Many programs and loans are designed specifically for first-time homebuyers. See what programs your state’s housing finance agency offers. If you meet certain requirements, you can receive funds to put toward your down payment and lower your out-of-pocket costs.
  • FHA loans — Backed by the Federal Housing Administration, FHA loans let you put down as little as 3.5%. But you’ll need a minimum credit score of 580 to do this.
  • HomeReady and Home Possible programs — The Fannie Mae HomeReady and Freddie Mac Home Possible loans are designed to make purchasing a home easier for first-time homebuyers. Their down payment requirements are as low as 3%.
  • Conventional loans — It’s possible to find a conventional loan with a down payment of only 3% to 5%. But you’ll need a good credit score to qualify and have to pay private mortgage insurance (PMI) until you reach 20% equity in your home.

4 mortgage options for people with bad credit

Low- or no-down-payment options are within reach, even if you don’t have the best credit:

  • FHA loans — FHA loans have low credit score requirements compared to other major home loan programs. You can qualify with a credit score as low as 500 as long as you put down 10%. If your credit score is at least 580, you’ll only need a 3.5% down payment.
  • VA loans — In addition to being a no-down-payment option, VA loans have no credit score requirements. With that said, some VA lenders set their own credit requirements, which you’ll need to meet.
  • USDA loans — When it comes to USDA loans, you usually need a minimum credit score of 640 to qualify.
  • Non-qualified loans — Offered by some banks and credit unions, non-qualified or non-QM loans are mortgages aimed at consumers that don’t meet the qualifying criteria for conventional mortgages and other traditional home loans. Even though you don’t need good credit, you’ll need to show that you can repay your loan by providing the lender with pay stubs, W-2s, and tax returns.

Ready to start the mortgage process? Visit Credible to compare rates and lenders.