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What is a Down Payment

Triston Martin

Oct 27, 2023

A down payment is the initial, non-refundable payment that you pay when buying a high-priced item, like a house or a car. You pay the remaining payment by getting a loan from any bank or a financial institution. The lending institution looks secure because you pay some of the buying cost upfront.

Homebuyers typically pay 5%–20% of the total cost of buying as a down payment when purchasing real estate. The bank, or any other financial institution, provides a mortgage to pay the remaining amount.

The down payment is what you contribute toward the acquisition and symbolizes your initial ownership interest in the home when you qualify for a mortgage to purchase a house. The mortgage lender provides the remaining money required to purchase the property. Lenders usually require a down payment for most mortgage options.

What is a Low-Down Payment Mortgage?

A low down payment mortgage is defined as a home loan that asks you to pay less than 20% of the buying price of your home upfront. Low down payment mortgage options appeal to many borrowers with little money because they enable them to save their remaining funds for incidentals and other unforeseen expenses.

What Low Down Payment Mortgage Options are Available

Are you struggling to save for a down payment? But, a 20% down payment feels out of reach. You’re not alone. Depending on your household income, credit history, and location, you can qualify for several low down payment mortgage options.

FHA Loans: 3.5% Down

The Federal Housing Administration (FHA) offers a low down payment mortgage with a minimum down payment of 3.5%.

You must have a FICO score of at least 580 to qualify for a 3.5% down payment. A 10% down payment is required if your score is between 500 and 579. Your debt-to-income ratio (DTI) must be up to 50%. However, remember that FHA loan requirements may vary depending on the mortgage lender.

USDA Loans: 0% Down

The United States Department of Agriculture (USDA) offers direct and guaranteed loans with no down payment through its Single-Family Housing (SFH) Programs in eligible rural areas. Applicants need to show their ability to pay bills and manage debt. However, USDA loans require no down payment but have to pay an upfront annual fee and guarantee fee. According to Experian, USDA loans require a credit score of at least 640 to qualify for a guaranteed USDA mortgage.

VA Loans: 0% Down

VA loans allow eligible surviving spouses, active duty service members, and veterans to finance a home with zero down payment, lenient credit score requirement, and no mortgage insurance. The U.S. Department of Veteran Affairs (VA) guarantees VA loans. Lenders who work with the VA cannot collect 1% of your loan as their fee. As a result, VA closing expenses are less expensive than those associated with other government-backed loan schemes.

You must complete a certificate of eligibility (COE), a document that shows a mortgage lender that you are eligible for a VA loan because of your VA benefits.

HomeReady by Fannie Mae

For low-income homebuyers, Fannie Mae, a government-sponsored enterprise, offers a 3% down payment loan. For a HomeReady loan, your FICO credit score must be at least 620. However, you may qualify for better terms if your credit score is 680 or higher.

Conventional 97

Conventional 97 is a conventional mortgage loan that requires a 3% down payment and has no income requirements. This conventional loan requires a credit score of 620 or higher.

Pros and Cons of Low Down Payment Mortgage

Is a low down payment mortgage the right option for you? For various reasons, you may want to apply for a mortgage loan with a down payment of less than 20%.


  • You have easy and quick access to home ownership
  • You can save money for emergencies
  • Instead of waiting to build up a large down payment, you can move into a home more quickly.
  • Buying a home and paying your debt will allow you to accumulate wealth.
  • You will bring less money to the closing.


  • You will have little or no home equity
  • You will have to pay private mortgage insurance (PMI)
  • You will probably pay higher interest rates

How can You Qualify for Low Down Payment Mortgage Options?

You will need a good FICO credit score to qualify for any down payment mortgage option, including low down payment mortgage options.

When deciding whether to approve you for a mortgage, lenders also consider your income, employment history over the previous two years, and debt-to-income (DTI) ratio.

Can you Buy a Home with no Down Payment?

Only two mortgage loans for first-time homebuyers require no down payment. These are USDA loans and VA loans. These loans are the best options to buy a home when you can’t afford a down payment. Borrowers who qualify can buy a house with no money down, but closing costs will still need to be paid.

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