Can I Buy a House Without Putting 20 Percent Down?

If you’re thinking about buying a home but concerned about meeting the minimum down payment requirements, there’s good news. Lower down payment options are available, ranging from as little as 5 percent to 0 percent, alongside specialized first-time homebuyer programs. While the 20 percent down payment has been standard, mortgage lenders now offer various programs with lower requirements. The minimum down payment varies by lender and program, but understanding the origins of the 20 percent guideline is crucial for informed decision-making.

Why choose 20% down instead of a lower option?

A higher down payment reduces your borrowing amount significantly, impacting your loan-to-value ratio (LTV). This ratio, crucial for mortgage approval, shows what you owe after paying the down payment. For example, compare monthly payments for a 5% versus a 20% down payment on a conventional loan:

To illustrate how your down payment amount can impact your monthly payment, take a look at the example below, which compares the minimum down payment (5 percent) on a conventional loan to a 20 percent down payment:

Down Payment Comparison for a Home Purchase of $300,000

Some individuals choose a higher down payment because borrowers who pay less than 20 percent in a mortgage down payment typically need to pay for Private Mortgage Insurance (PMI) in addition to their monthly mortgage payment. Lenders perceive PMI as lowering the risk. Some borrowers address this by taking out two mortgages: the first covering 80 percent of the home price, and the second (a piggyback loan) covering ten percent of the home price, leaving a ten percent down payment and no PMI requirement. However, piggyback loans are less common now, possibly because today’s mortgage market offers many viable alternatives, as outlined below.

Alternative Home Loan Options that Do Not Require a 20 percent Down Payment

Alternative #1 – FHA Loan

There are several government-backed, nonconforming loans aimed at assisting lower income households and making homes more affordable, starting with one from the Federal Housing Administration (FHA). FHA mortgage loan programs are ideal for first-time homebuyers, as they offer smaller down payments and can work for borrowers with lower credit scores. In fact, buyers can get an FHA loan with a down payment as low as 3.5 percent of the home’s purchase price, according to the U.S. Department of Housing and Urban Development, the agency that oversees FHA.

However, if you don’t want to pay mortgage insurance, take note that FHA borrowers will need to pay for FHA private mortgage insurance as a result of not putting 20 percent down. These payments usually last for the life of the loan.

Alternative #2 – Down Payment Assistance Programs: City and Federal Options

Many cities and the federal government provide down payment assistance programs aimed at revitalizing areas affected by natural disasters or economic downturns. While income limits may apply, homeowners can often access support with proper guidance. Examples include Atlanta and San Francisco, though these programs extend beyond major cities to towns, counties, and states nationwide. Conduct thorough research, contact your local housing authority, and consider consulting a mortgage broker for guidance. Additionally, explore options with employers and professional organizations that may offer assistance programs. It’s worth exploring all avenues to find suitable support.

Alternative #3 –Veteran Affairs (VA) Loan

Granted to active servicemembers and veterans (as well as surviving spouses), VA loans are tailored to military families and offer 100 percent financing. Not only that, according to the Department of Veteran Affairs, a VA loan can help buyers purchase or refinance a home at a low interest rate, often without a down payment. In terms of VA loan benefits, borrowers can get reduced closing costs, appraisal costs and loan origination fees. Also, buyers don’t have to pay PMI, regardless of how much down payment they pay, making VA loans a better option than FHA loans in this respect.

To qualify for a VA loan, potential homebuyers must meet specific service requirements and have a good credit score, sufficient monthly income and a Certificate of Eligibility (COE).

Alternative #4 –USDA Loan

Another loan that offers 100 percent financing is the USDA Rural Housing Loan, insured by the U.S. Department of Agriculture (USDA). Primarily designed to encourage homeownership in rural areas, these loans are also available in urban areas (though the agency only approves certain houses, meaning your choice must be USDA-qualified) and require no down payment. Similar to VA loans, USDA loans are quite affordable, but unlike VA loans, they do require borrowers to pay mortgage insurance premiums.

Alternative #5 – Conventional 97

The Conventional 97, available from Fannie Mae and Freddie Mac, only requires a 3 percent down payment. These mortgages usually have slightly higher minimum credit score requirements, but conventional 97 loans allow the borrower to cancel PMI once they reach 20 percent equity. Another advantage? Borrowers are allowed to use gifted funds and even employer or church grants for all or a portion of the down payment.

Other considerations

Certain lenders offer no-PMI loans where they cover the mortgage insurance costs, but in exchange, you might face a higher interest rate. Similarly, zero down payment loans can involve additional fees in your closing costs. Explore our home loan interest rates guide to understand how different loan types and down payment amounts affect your rates. Check out our guide to home loan interest rates

When deciding, “Should I put 20 percent down on a mortgage?” crunch the numbers on monthly payment differences, evaluate the advantages and disadvantages, and consult with a trusted AmeriSave mortgage banker. They’ll help you find the ideal loan program and determine your optimal down payment. Ask about other criteria like income levels, minimum credit scores, housing expense limits as a percentage of income, and debt-to-income ratios (DTI).

At AmeriSave, we make it easy to assess your eligibility for various loan programs and provide details on smaller down payment options and related considerations. how much to spend on your down payment.