Which loan type has the smallest down payment requirement?
FHA loans require as little as 3.5 percent, and VA loans and USDA loans have no down payment requirement at all. Most homeowners don't put 20 percent down. In 2023, the median down payment among homebuyers was 14 percent, according to the National Association of Realtors (NAR).
FHA Loan Down Payments
An FHA loan requires a minimum 3.5% down payment for credit scores of 580 and higher. If you can make a 10% down payment, your credit score can be in the 500 – 579 range. Rocket Mortgage® requires a minimum credit score of 580 for FHA loans.
FHA loans. Insured by the Federal Housing Administration (FHA), an FHA loan requires only 3.5 percent down with a credit score as low as 580.
The private market option for a no or low down-payment purchase is essentially the Loan-to-Value (LTV) Mortgage option.
The minimum down payment is the cash contribution that a borrower must provide when they purchase a home. Many mortgage loans will require such a minimum, and the actual amount required varies by the loan program, but the standard minimum down payment required for a conventional loan is 20% and 3.5% for an FHA loan.
A lower down payment could mean you're able to buy a home months (or years) earlier. Saving up 20% of the purchase price of a home —at today's high prices — can take a long time for many of us. If you spend less on the down payment, you'll free up funds to cover the myriad of other transaction-related expenses.
Down payment requirements
FHA loans are appealing for homebuyers who can't make a large down payment. With FHA loans, buyers may be able to put as little as 3.5% down. Conventional loans used to require a minimum down payment of 20%. However, some lenders now offer conventional loans with as little as 3% down.
The easiest way to buy a house with no money down is to use a government-backed mortgage. VA loans are designed for veterans and active military members, and they offer the advantage of no down payment and no requirement for mortgage insurance. This makes them an attractive option for eligible first-time buyers.
Buyers with strong credit may be eligible for a number of loan programs that require only a 3% down payment. These include the conventional 97% loan, Fannie Mae's HomeReady® loan and Freddie Mac's Home Possible® and HomeOne loans. Each program has slightly different income limits and requirements, however.
Government-backed loan options, such as FHA, USDA and VA loans, are typically the easiest type of mortgage to get because they may have lower down payment and credit score requirements compared to conventional mortgage loans.
Why is FHA better than conventional?
FHA Loan: Pros
Low down payments of as little as 3.5% of the home's purchase price. Low closing costs. Buyer minimum credit scores that are lower than required by conventional mortgages. Higher debt-to-income ratio than allowed by conventional mortgages.
In a nutshell, depending on the size of your down payment, an FHA mortgage loan could be less expensive in the short term, but once you no longer have to pay for PMI on your conventional loan, it could end up being the less expensive option.
When buying a new car or a house, it is common for the buyer to make a down payment to secure the purchase. However, when purchasing a cell phone, down payments are usually not required. Instead, cell phone purchases are often financed through monthly installment plans.
VA loans do not normally required a down payment. A VA loan amount is 100% of the purchase price if the purchase price does not exceed the maximum loan amount.
Minimum down payment of 20%. However, there are conventional loans available with lower down payments if the buyer is willing to pay a Private Mortgage Insurance premium (PMI).
Typically, mortgage lenders want you to put 20 percent down on a home purchase because it lowers their lending risk. It's also a rule that most programs charge mortgage insurance if you put less than 20 percent down (though some loans avoid this). But it's not a rule that you must put 20 percent down.
What is an example of a down payment? If a house costs $300,000 and the buyer provides $50,000 toward that purchase price, with a bank providing the remaining $250,000, the $50,000 is the down payment. It is equal to 16.7 percent of the purchase price.
To purchase a $200,000 house, you need a down payment of at least $40,000 (20% of the home price) to avoid PMI on a conventional mortgage. If you're a first-time home buyer, you could save a smaller down payment of $10,000–20,000 (5–10%). But remember, that will drive up your monthly payment with PMI fees.
You can save for a house by using high-yield savings and CD deposit accounts, cutting back your spending elsewhere and looking for down payment matching programs. If those strategies aren't enough, you might also consider asking for a raise at work or even moving back home for a while to cut rent payments altogether.
First, no down payment leaves you with a large amount of debt with no home equity cushion. Home equity is the difference between the amount you've paid and/or what your home is worth and the amount you still have to pay.
Can you take a personal loan for a down payment on a house?
Most banks will not accept a personal loan as a down payment on a house because it indicates that you might not be the most reliable borrower. Taking out a personal loan also increases your debt-to-income ratio, or DTI. To get this number, divide your gross monthly income by your monthly recurring debt.
Private mortgage insurance (PMI) is a type of insurance that a borrower might be required to buy as a condition of a conventional mortgage loan. Most lenders require PMI when a homebuyer makes a down payment of less than 20% of the home's purchase price.
The 20% down payment recommendation can make homeownership feel unrealistic – but the good news is that very few lenders require 20% at closing. That said, making a down payment that equals 20% of a home's purchase price offers advantages.
While a 20 percent down payment is the traditional standard for purchasing a home, it is not mandatory and there are loan options that have much lower minimum requirements.
FHA loans have a minimum down payment of 3.5 percent with a credit score of 580 or higher. For scores between 500 and 579, the minimum is 10 percent. VA loans and USDA loans do not require any down payment, but they are reserved for members of the military and veterans or buyers in rural areas, respectively.
