Photo: SAUL LOEB (Getty Images)
Buying a house is a complicated, expensive process, especially for buyers who can’t swing a “traditional” 20% down payment. You’re basically convincing a bank to lend you upwards of half a million dollars in many markets; if they don’t believe they can trust you to pay back that much money (plus interest), it’ll cost you even more in the form of mortgage insurance and other fees.
All of this can leave low-to-moderate income prospective buyers feeling hopeless and discouraged. Housing prices in the United States aren’t exactly helping, either: In 2021, the median home sales price passed $400,000 for the first time in history. A 20% down payment on a $400,000 mortgage is $80,000—a truly ridiculous amount of money for all but a lucky few.
But the good news is you don’t have to put 20% down in order to get a good (or at least acceptable) mortgage. Certain programs only require a 3–3.5% down payment; assuming a $400,000 sale price, that’s a much more realistic $12,000–$14,000. Even if you “only” have about $12,000 for a down payment (which is still a huge chunk of change), you can buy a house. You can buy one with no money down, too—here’s how.
Research your options
Mortgages are just really big loans. Unfortunately, that means there are about as many different mortgages as there are financial institutions that offer them, which creates a ton of legwork for prospective buyers. To make things a little simpler, the federal government backs certain loans geared towards first-time buyers. These loan programs only require a low (3–5%) down payment:
Other programs offer mortgages with no down payment at all, including:
USDA loans: 0% down payment; annual fee of 0.35%; limited to eligible rural areas; income restrictions apply VA loans: 0% down payment for some lenders; no PMI required; up-front funding fees of 1.4%-2.3% for first-time buyersNACA (Neighborhood Assistance Corporation of America) loans: 0% down payment; $25 annual membership fee per household; no PMI required; seller pays closing costs; income and location restrictions applySome private lenders (banks, credit unions, online mortgage lenders like Quicken Loans or Rocket Mortgage) also offer conventional mortgages with down payments in the 5%-10% range, depending on your income, credit score, and desired purchase price. But this is just a small sampling of what’s out there—be sure to check with local lenders, too.
Meet with loan officers and/or mortgage brokers
Once you have an idea of what you’re looking for in a mortgage, it’s time to start gathering some quotes. To do this, you’ll need to meet with people who know all about the specific loans you’re eyeing. For most people, this means contacting loan officers, mortgage brokers, or both.
Loan officers and mortgage brokers do the same thing—match buyers with mortgages—but they go about it in different ways. Loan officers work for a specific lender, so they’re limited to whatever mortgages their employer offers. Mortgage brokers are usually independent and work with multiple lenders. Both charge either the lender or the buyer some amount of money for the work of preparing, applying for, and processing a loan: Broker fees are usually around 1%-2.75% of the loan amount (federal law caps it at 3%), while “loan origination fees” for loan officers are a bit less, around 0.5–1%. If the lender is paying these fees, they’ll show up in your loan estimate form under “Origination Charges.”Always include these fees when comparing quotes; they could save you lots of money.
A down payment is just one part of a mortgage: Between interest rates, insurance, lender fees, and closing costs, there are plenty of other (very expensive) moving parts to consider. But if a 20% down payment has been the main homeownership deterrent for you, at least now you know you have other options.
