Guide to Low Down Payment Mortgage Options

Written by Susan Lahey
Published February 10, 2019
Some mortgages allow you to have a small down payment Some mortgages allow you to have a small down payment

It may seem like mortgages that let you pay a small down payment are few and far between. However, they’re the norm. A National Association of Realtors 2017 survey said 88% of home buyers financed 90% of their home purchase. New home buyers financed 95%. The most common down payment is between 5-to-10%.

Most programs that offer low down payments are designed to help people who meet very specific criteria. Some programs, for example, are only for people with really high credit scores, and others are for people whose scores aren’t so great, but who have other factors that can influence a positive loan decision. Here are some of the options:

Zero Down Mortgage Loans

The Veterans Administration (VA)

  • Zero-down loans for eligible veterans
  • Up to $484,350 in 2019 in most parts of the country with no down payment, so long as the property appraises for the asking price, and the veteran is income and credit qualified.
  • No maximum debt ratio. Debt to income ration is how much you pay in debt per month divided by your monthly gross income. If the debt ratio is more than 41%, lenders have to come up with compensating factors to justify the loan.
  • No minimum credit score requirement. The VA requires lenders to base a decision on the veteran’s entire loan profile.

The United States Department of Agriculture (USDA)

  • Zero-down loans for eligible home buyers in specified areas
  • Lots of rules about where the property is located and who is buying it. For example, the home must generally be under 2,000 square feet and have no in-ground swimming pool.
  • Payment assistance is available.
  • Fixed interest rate based on current market rates at loan approval or loan closing, whichever is lower. When modified by payment assistance, those rates can be as low as 1%.
  • Applicants have up to 38 years to pay the loan back, depending on their income.

3%-5% Down Mortgage Loans

Fannie Mae LTV 97% Standard:

  • One buyer must be a first-time home buyer
  • Fixed-rate 30-year mortgages only
  • No income limits
  • Standard Mortgage Insurance (MI) subject to factors like debt ratio and credit score.

Fannie Mae Home Ready LTV 97%

  • Fixed-rate 30-year mortgages only
  • No income limit in low-income census tracts; 100% of Average Median Income (the median income of everyone in the area) elsewhere.
  • Borrowers with Loan-to-Value (LTV) ratios of 90.01-97% pay 25% mortgage insurance coverage. People with LTV ratios of under 90% pay standard MI. LTV is a measure of the size of the loan compared to the value of the property, determined by dividing the loan amount by the property value.
  • Homeownership education and housing counseling required.
  • Risk-based pricing (pricing loans higher for higher-risk home buyers) is waived for loans with LTV ratios over 80% with a credit score of 680 or greater. There’s a cap on risk-based loan pricing of 1.50% applies for loans that don’t meet these requirements.

Freddie Mac Home One

  • At least one home buyer is a first-time home buyer.
  • At least one borrower must have a healthy credit score
  • Allows a 97% LTV
  • Requires education programs if all borrowers are first-time buyers
  • The cap on income limits at 100% AMI for properties in designated high-cost areas, disaster areas, and minority census tracts.
  • The standard required mortgage insurance coverage level is 35%. Custom mortgage required insurance coverage level is 18%.

Federal Housing Administration (FHA)

  • The borrower must have a FICO® score at least 580 for a 3.5% down payment.
  • MIP (Mortgage Insurance Premium) is required.
  • Debt-to-Income Ratio—how much you make every month divided by how much you owe—must be less than 43%.
  • The home must be the borrower's primary residence.
  • The borrower must have a steady income and proof of employment.
  • Different places have different lending limits, but in Dallas County, the limit for a single-family residence in 2019 is $395,600.

Not all loans are the same. While Fannie Mae and Freddie Mac and the rest have certain standards, lenders will usually work to find a way to create the best loan that will meet your financial needs while satisfying the expectations of their underwriters. This is especially true if you have already established a relationship with the lender.

Are you having trouble deciding which mortgage loan type is right for you? Have some questions? The Mortgage Lending Specialists at Credit Union of Texas can help answer any questions or concerns you may have. Visit our Mortgage Loans page for details.

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