Can you buy a house with less than 20% down payment?

If you don't have a lot of money to pay upfront, these low down payment loan options can help you become a homeowner. (iStock)

For many people, one of the biggest hurdles to home buying is making a down payment.

In real estate, a down payment is money you pay upfront toward buying your home or the portion of the home's price that isn't rolled into the home loan. The old rule of thumb was that you needed to put at least 20% down in order to buy a house — but what if you don't have enough for a 20% down payment?

Fortunately, there are other options available to you. If you're preparing to buy a house right now, the first thing you should do is check out Credible to learn more about the mortgage process and determine your total costs.

For those who can't afford a 20% down payment on their dream home, read on.

Can I get a mortgage with less than 20% down?

While a 20% down payment is typically considered to be the gold standard, putting the amount of money down can be difficult for a first-time homebuyer. But the 20% rule doesn't always apply. There are other financial steps you can take if you don't want to make a huge lump sum payment and hurt your personal finance.

Multi-lender site Credible is always a great place to start if you're looking to save money. You can compare rates and mortgage lenders from the comfort of your own home and get a picture of your monthly payments and total costs.

There are also loan options that allow for low down payments or no down payment at all.

Zero-down mortgage options

One of the best tips for first-time homebuyers who are ready for homeownership but don't have much money to pay upfront is to choose a zero-down mortgage program. There are two popular types of mortgage programs that help you save money by rolling the cost of your down payment into your loan amount. They include:

  1. VA loans
  2. USDA loans

1. VA loans 

A VA loan is backed by the Department of Veterans Affairs. This loan option is available to current and former military members or their surviving spouses. While you do have to meet certain eligibility requirements to use this type of financial assistance, if you qualify, there are many benefits to choosing a VA loan program.

To start, VA loans allow you to finance up to 100% of the home's purchase price. In addition, while many low down payment loan options feature private mortgage insurance (PMI) requirements, which is an additional fee that adds to your monthly payment, VA loans do not.


2. USDA loans

If you're not a veteran, but you're still interested in exploring loan programs that offer zero-percent down payment options, it's a good idea to look into getting a USDA loan. Like VA loans, USDA loans are backed by the federal government, but this time they fall under the United States Department of Agriculture (USDA).

In order to qualify for a USDA loan, you need to decide to buy a home in a rural area. You can use the USDA property eligibility tool to find out a particular property qualifies. Additionally, you’ll need to have an adjusted income that falls within the income limits for the area where you intend to buy. Unfortunately, if you make too much money, you will not be able to qualify for a USDA loan.

If you think you might be a candidate for either one of these loan programs, visit Credible to get in touch with an experienced loan officer who can answer any questions that you may have about the process


Low down payment mortgage options

In the event that you're not a good fit for either of those loan programs but you're still interested in purchasing a home, there are also loan down payment mortgage options that can help you finance your perfect home. They are as follows:

  1. FHA loans
  2. Home Ready and Home Possible loans
  3. Conventional loans

1. FHA loans

Similar to the other two types of loans we've mentioned, FHA loans are also backed by the federal government. In this case, they're backed by the Federal Housing Administration.

Although FHA loans do come with a fee that’s similar to a private mortgage insurance requirement, they are often thought to be a good choice for first-time homebuyers because they allow for a down payment as low as 3.5% and they have looser credit score requirements. If you plan to make a down payment of 3.5%, you only need to have a credit score of 580, which is much lower than the conventional loan credit score requirement of 620.

Ready to take the next step? Use an online mortgage calculator to see what your monthly payments could look like based on your budget. Credible can also help you crunch the numbers. Just enter some simple information into their free online tools to compare rates and lenders and see how much home you can afford.


2. Home Ready and Home Possible loans

Home Ready and Home Possible loans are two other low down payment loan options available to first-time home buyers. These programs are respectively offered by Fannie Mae and Freddie Mac, the two largest buyers of mortgages in the United States. The purpose of each of these programs is to make home purchasing easier for first-time buyers by offering down payment options as low as 3%.

Notably, both of these programs have an income limit that is specific to the area where the home is located. However, if you qualify, these loans are offered through private mortgage lenders rather than the federal government, which means that you have the ability to shop around and compare rates in order to find the best fit for you.

Credible can help you start the process of comparing mortgage rates and lenders from the comfort of your own home.


3. Conventional loans

Even if you're not a first-time home buyer, there are still low down-payment available to you. These days, it's possible to find a conventional loan with a down payment requirement of only 3% to 5%.

If you're thinking of going this route to buy a home, your best bet is to talk to an experienced lender who can give you a recommendation based on the specifics of your financial situation.

Wondering what’s next? You can use an online mortgage broker like Credible to start the mortgage pre-approval process and to get a pre-approval letter without damaging your credit score.