Low Down Payment Mortgages in 2024: What To Know

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Jun 26, 2024

Realtors predict the 30-year mortgage rate will fall below seven percent in the second half of this year. Although the trend is downward, the decline will have significant up-and-down swings.

Still, this is good news for first-time homebuyers and low-income earners looking for low down payment mortgages.

During the second quarter of 2023, the nationwide down payment average for houses was 14.4 percent—around $34,248. Meanwhile, the average down payment for second homes is 27 percent of the purchase price.

These down payment rates may be unaffordable for some.

So, what are the available low-down payment mortgages and their pros and cons? How can you qualify for these benefits?

Types of Available Low Down Payment Mortgages

The standard mortgage down payment is at least 20 percent. If this seems out of reach, you could qualify for the following low-down-payment mortgage programs:

FHA loans

Federal Housing Administration (FHA) loans are government-backed mortgages. These loans have lower down payment and flexible credit requirements.

The minimum down payment for these loans is only 3.5 percent of the purchase price. However, your credit score must be at least 580.  

Meanwhile, a 10 percent down payment is required for credit scores between 500 and 579.

Also, your debt-to-income ratio should be no more than 50 percent.

USDA loans

The USDA—U.S. Department of Agriculture—offers direct and guaranteed loans with zero down payments through its single-family housing programs in rural areas. You can build, purchase, improve, relocate, or rehabilitate a property in an eligible rural area with 100 percent financing.

Although there’s no down payment, you’ll pay an annual fee and an upfront guarantee fee. Still, USDA mortgages have more flexible requirements. For instance, most lenders can accept credit scores as low as 640.

VA loans

VA loans are government-backed mortgages to servicemembers, veterans, and their families.

These VA-guaranteed home loans don’t require a down payment as long as the sales prices don’t exceed the appraised value. They are available for manufactured homes, can limit the closing costs, and give you the right to prepay without penalties.

The VA may also offer some assistance if you experience temporary financial difficulties.

Other government-sponsored low-down-payment mortgages are HomeReady by Fannie Mae and Freddie Mac Home Possible loans.

Mortgage loans from private lenders

Private lenders offer their own low-down-payment mortgages and assistance programs.

For example, online mortgages from lenders like SoFi offer competitive low down-payment options for first-time homebuyers. You can put down as little as three to five percent. The online application is straightforward, and you have flexible term options.

Moreover, you can reduce the overall costs of your existing mortgage with competitive rates when you choose to refinance.

Benefits and Drawbacks of Low Down Payment Mortgages

Low-down-payment mortgages entail the following pros and cons:



Low-down-payment mortgages lower the financial barriers that usually prevent potential buyers from purchasing properties. With a reduced initial financial commitment, more people can afford to purchase homes despite not having substantial savings.

Retains more cash on hand

Low-down-payment mortgages provide greater flexibility. Rather than saving for a large down payment, you can allocate your financial resources toward investments or other essential expenses.

This flexibility helps ease economic burdens, enabling you to manage your finances more efficiently while gaining the perks of homeownership.

Additionally, you can leverage low interest rates and favorable market conditions, enabling you to enter the market opportunely instead of waiting and potentially facing higher costs.

Potentially higher returns

You have additional financial growth opportunities because you retain and invest more cash elsewhere. You can diversify your investments by putting the saved money into bonds, stocks, and other potentially high-return assets.

Moreover, the return on investment, or ROI, can be substantial when you sell your property.

For example, if you invest a lower upfront amount and the property value increases, the ROI percentage can be higher than the down payment.


Private mortgage insurance (PMI)

PMI is mortgage insurance that you might be required to purchase if you take out a conventional loan with a down payment of less than 20 percent. This insurance protects the lenders when you stop making loan repayments.

Besides the down payment, PMI costs depend on the following factors:

  • Your premium plan
  • Loan term
  • The amount covered by the lender
  • Whether the interest rate is adjustable or fixed
  • Your credit score
  • Risk factors, e.g., second home, cash-out refinance, or investment property

The types of PMI include:

  • Borrower-paid: This insurance adds a monthly fee to your mortgage payment. You’ll pay it until you have 22 percent equity based on the original purchase price.
  • Single-premium: You’ll pay an upfront mortgage insurance amount. The payment can be made in full when closing or financed into the mortgage.
  • Lender-paid: The lender pays the insurance premium, but you’ll pay for it through higher interest rates over the life of the loan.
  • Split-premium: This premium combines borrower-paid and single-premium mortgage insurance. You don’t have to pay more upfront, but you won’t increase your monthly payment as much.
  • FHA mortgage insurance premium: This premium is required for all FHA loans. You must meet specific livability criteria. Otherwise, your home is considered uninsurable.

Higher monthly payments

Low-down-payment mortgages may lead to higher monthly payments. This can strain your monthly budget, making managing debt, expenses, and financial goals more challenging.

Higher monthly payments can also affect a property’s affordability. You might find yourself paying more over the life of the loan, making it less financially advantageous. Your debt-to-income ratio may even be impacted, affecting your ability to qualify for other credit and loan applications.

Increased interest rates

Some lenders view mortgages with low down payments as riskier because borrowers have less equity from the start. As a result, they may incur higher interest rates to compensate.

Even a slight increase in the interest can add thousands to the total amount paid over the life of the loan, making homeownership more costly.

Higher interest rates can also yield higher monthly payments.

What You Should Remember

Your current financial situation plays a significant part in determining what percentage of down payment is appropriate for you.

At the same time, lenders weigh many requirements before approving mortgage applications. Remember that these requirements vary, so you must understand and meet them to get your desired down payment terms.

Make Informed Financial Choices

You don’t have to give up on your dream home if you can’t meet the 20 percent down payment. However, choosing the most suitable terms and conditions requires careful consideration.

As such, making informed financial choices is the key to maximizing low-down-payment mortgages without straining your financial resources. Being realistic about your financial capability will help you achieve homeownership while meeting your financial goals.

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