Typical conventional loans require a 20% down payment. This increases your chances of approval.
If your home is $300,000, you will need $60,000 for a down payment to qualify for a conventional loan by Fannie Mae and Freddie Mac. This option conforms to the widest range of buyers and properties and is the most popular.
There are some loan products that require less than 20%. And if you put less than 20% down, you will be required to get private mortgage insurance (PMI) that carries other fees that get wrapped into your mortgage.
VA Loans or veteran’s assisted loans can be a 0% down and backed by the US government. This is available to current or former military personnel and their spouses.
There are specific requirements for a VA loan:
- 90-day consecutive service for wartime, or
- 181 days of peacetime, or
- 6 years in the national Guard, or
- you are a spouse of a service member who perished on duty
- A credit score of 580 to 620 is also required
FHA loans are loans insured by the Federal Housing Administration. It’s a viable option for low to middle income borrowers with less-than-ideal credit scores. You will be required to carry private mortgage insurance since your down payment will be less than the 20%.
Private mortgage insurance (PMI) is there to protect the lender in case you stop making payments on the loan. Ask your lender what choices they offer. This PMI can be proposed as a one-time up-front fee, a monthly premium fee or both an upfront and monthly fee.
- FHA loans can require as little as 3.5% down with a 580 or higher credit score.
- A minimum credit score of 580 is required
- If you can put a 10% down payment then you can be approved within the 500-579 range
- Requires private mortgage insurance premiums
USDA loans or the U.S. Department of Agriculture mortgage program is for low to very low-income families who cannot qualify for a conventional loan. This is not a widely used loan option.
- S. citizen or legal permanent resident
- 0% down loan
- Typically require 640 credit score
- Has to be a primary residence
- Will have private mortgage insurance premiums
- Home is in a qualified rural area
- Debt to income ratio cannot exceed 41%, unless you have a credit score over 680
- Household income is equal or less than 115% of median income
There are still some credit requirements associated with any of these loans such as minimum credit scores and minimum down payments. This can also vary from lender to lender, but not in vast differences.
Down Payment Assistance Programs
There are down payment assistance programs available that vary from state to state, and even from county to county. Do your due diligence to see if you can qualify for any assistance.
Some benefits can be:
- down payment grants that do not need to be repaid
- attractive 30-year interest rates
- no first-time buyer requirements
- county and income limits
- 0% interest or low monthly rates with no monthly payment or a balloon payment at the end of a 10-year term, etc.
These laws can vary widely and greatly. There are approximately 2500 programs available from local, state agencies and nonprofits.