Financing Your Home with a Low Down Payment Mortgage

Low Down Payment Mortgage

Buying a home is a landmark decision — but what if you can’t afford a down payment? For some, coming up with the traditional 20% down payment necessary for buying a home can be a challenge based on numerous circumstances. However, low down payment mortgage options from First Mid can get you into a home with a much lower down payment. Keep reading for a Q&A with our mortgage team about low down payment mortgages and how they can help borrowers get into their dream homes.

How does a low down payment mortgage differ from a traditional mortgage?

As the name suggests, low down payment mortgages allow potential homebuyers to put down much less for a down payment than required for a traditional mortgage. This means the homebuyer could make a down payment as low as 3%, whereas a traditional mortgage may require a down payment anywhere from 5 – 20%. These programs can be driven by factors such as income or veteran status.

Who is eligible for a low down payment mortgage?

Borrowers who typically don’t have the 5% down payment needed for conventional mortgage loans may qualify for low down payment loan options.  

What are some of the different low down payment mortgage options available from First Mid?

Home Possible® – This program through Freddie Mac allows homebuyers to put down as little as 3%, which can come from a variety of sources. This program offers reduced PMI rates and premiums. Borrowers must meet certain income requirements — i.e., annual income must be equal to or less than 80% of the area median income — with a credit score of at least 660, though the loan can be used for numerous property types if the property is owner-occupied and a primary residence. For more information on income and property eligibility for the Home Possible® program, visit the Freddie Mac Property Eligibility Tool.

HomeOne® – This program through Freddie Mac is available to qualified first-time homebuyers for a low down payment of only 3%, regardless of their income levels or geographic location. The program is also an option for refinancing with no cash-out. The HomeOne® mortgage provides more flexibility for maximum financing, and a higher chance of bringing borrowers to the closing stage of the home buying process.

Rural Development – This loan helps low- to moderate-income families by allowing borrowers to finance up to 100% of the home’s value. However, participants must meet certain eligibility requirements and the property must be located in a rural area as defined by the U.S. Department of Agriculture. To find out if your address is eligible for a Rural Development loan, visit USDA Rural Development.

FHA – This 3.5% down program features no income limits, meaning anyone can qualify regardless of income. However, while underwriting for most low down payment options is largely the same as conventional loans, FHA loans work differently. Customers must have funds for closing — hence the 3.5% down — though those funds may come in different forms, such as a gift, grant, or the borrower’s own checking and savings accounts. FHA loans can help first-time homebuyers — as well as those rebuilding their credit scores — more easily buy a home with more flexible credit options than conventional loans.

VA – Offered exclusively to qualified-veterans and their surviving spouses, the VA loan allows borrowers to finance up to 100% of the home’s value. The VA loan also guarantees a portion of loans obtained by a private lender, allowing the lender to provide more favorable terms for the homebuyer.

Down Payment Plus – This program, through the Federal Home Loan Bank of Chicago, is an income-based $10,000 grant. If homebuyers put in $1,000 of their own money and are below the maximum household income threshold, FHLBank will pay a $10,000 grant to assist with down payment and closing costs. Grants are forgiven after five years of owning the property. To learn more about the Down Payment Plus program, visit FHLBank Chicago.

Not sure which low down payment option is right for you? Want to see if you and your property are eligible? The home loan experts at First Mid are here to help! Contact us at 1-877-888-5629.