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Five Ways to Buy a House With a Small Down Payment

first-time homebuyers

Despite what you might have heard, a 20% down payment isn’t necessary to buy a house. In fact, according to real estate agents, nearly half of all homebuyers put down less than that in July 2021. Among first-time buyers? It was 71%.

That’s probably quite a relief if you’re thinking of buying a house yourself. But exactly how did those buyers make it happen? And what can you do to improve your chances of buying a home with little (or even no) down payment?

Here are five ways to make it happen:

Buy a USDA-eligble house

The USDA loan program is a little-used option that lets you buy a house with zero down payment at all. That’s right: No down payment is required whatsoever.

The catch is you have to buy in an eligible rural part of the country. That might sound like a dealbreaker, but you’d be surprised at what’s considered “rural” in the government’s eyes. Many suburban communities are actually eligible for the program, which could save buyers thousands (often tens of thousands) when purchasing their homes.

To see where you’d be eligible to use a USDA mortgage loan in your area, check out the USDA map tool.

Get down payment assistance

Down payment assistance programs are offered through state and local housing authorities and can pay for part or even all of your down payment in some cases. These programs are usually reserved for lower-income buyers, but if you’re eligible, they can save you tons of cash.

Some down payment programs work like loans, which you’ll need to pay back monthly or when you sell or refinance the home. In some cases, these loans are forgivable if you live in the home long enough (usually three to five years). Other assistance programs are grant-based, which means they don’t need to be repaid at all. Again, these are typically reserved for borrowers with very low incomes.

A quick note: Many agencies also offer closing cost assistance too, which could offset your homebuying costs even more. Make sure to ask your lender or state housing agency if these are available in your area.

Use a government-backed mortgage program

Mortgage programs that are government-backed can typically go to riskier borrowers (i.e., ones with lower credit scores or smaller down payments). This is because the government guarantees part of the loan – meaning it will repay the lender (at least partially) if you default on your mortgage.

USDA loans (mentioned above) are one type of government-backed mortgage, but other types include the FHA loans and the VA loan. With FHA loans, a popular product for first-time buyers, your down payment can go as low as 3.5% – or $7,000 on a $200,000 home. With VA loans, which are reserved just for veterans and military members, you’ll make no down payment at all. You’ll need to meet certain military service requirements to be eligible, though.

Pool money from friends and family

Most loan programs allow you to use what’s called “gift money” toward your down payment (and closing costs). So, if you only have a small amount saved up, you might be able to ask mom, dad, or another loved one to contribute to your savings and pad that down payment.

Just make sure the move is well-documented (meaning you deposit it into your bank account, so there’s a paper trail), and ask your loved one for a letter. They’ll need to assure the lender that the funds are a gift – not a loan – before they can be used toward your home purchase.

Focus on smaller homes, like condos or townhouses

The size of your down payment is directly correlated to the price of your home. On a $350,000 home, for example, the minimum down payment on an FHA mortgage would be $12,250. If you opted for a smaller, less expensive place – say one for $150,000 instead, you’d pay just $5,250 on that same FHA loan.

While it’s not so easy to find a spacious, single-family home for $150,000 –at least in today’s market, pivoting to smaller properties may help and thereby reduce your required down payment. Townhomes, condo units, and even manufactured homes can all be great options here. Just remember: You can always sell in a few years, and then use those profits toward the down payment on a larger, more spacious place.

The bottom line

If you’re short on savings, it doesn’t mean buying a home is entirely out of reach. As long as you choose the right loan program, focus on the right price range, and take advantage of the various assistance programs and resources that are out there, homeownership could very well be in your future – and maybe sooner than you think.


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