5 Ways to Buy a House With Less Than 5% Down!

Affordability is one of the biggest hurdles for today’s potential home buyers. Low housing inventory continues to drive up demand and therefore, home prices. Coupled with rising interest rates, you may wonder if homeownership is possible for you. But the good news is, yes, you can buy a home in today’s housing market, and for less than you might think. Here are 5 ways you can buy a house with less than 5% down!

Conventional loans are one of the most common types of mortgages because they are cost effective, applicable to nearly all types of properties and offer flexibility in terms and loan limits.

1.Conventional loan options

Conventional loans are one of the most common types of mortgages because they are cost effective, applicable to nearly all types of properties and offer flexibility in terms and loan limits.

However, most people think you need at least 20% down to obtain this type of loan. While 20% down will help you avoid paying private mortgage insurance (PMI), you actually only need as little as 3% down!

MiMutual Mortgage offers these low down payment conventional loans:

Freddie Mac HomeOne

The Federal Home Loan Mortgage Company (FHLMC) better known as Freddie Mac,  has a great low down payment mortgage option called  HomeOne. Available to first-time homebuyers, it requires just 3% down! There are no geographic or income restrictions and this loan is eligible to use for purchase of single-family homes, townhouses, and condos.

Freddie Mac Home Possible

The FHLMC Home Possible loan offers low-income borrowers an opportunity to purchase a single-family home for just 3% down. Additionally, the program allows for non-occupant co-borrowers to make qualifying easier.

Fannie Mae HomeReady

The Federal National Mortgage Association, (FNMA) or Fannie Mae as it is known, also has a great low down payment option. The FNMA HomeReady loan expands access to homeownership for both first-time homebuyers and repeat buyers. Like HomeOne, just 3% down is required.

Owner-Occupied Multi-Unit Properties

You may not have considered purchasing a multi-unit as an affordable option; however,  you could significantly offset your mortgage costs each month! In 2023, Fannie Mae reduced the down payment requirement on multi-unit properties. This created a tremendous opportunity for buyers looking for a way to afford a home.

Prior to the change, a substantial down payment of 15-25% was required. Now, buyers can buy a duplex, triplex or quadplex with just 5% down! Homebuyers utilizing this loan option not only take advantage of a low down payment, but could cover a portion or potentially all, of their monthly mortgage by renting out the additional units. Furthermore, borrowers can count the actual or potential rent as income when qualifying for the loan!

 

2.Government Backed Loan Options

Government loans are still offered through a mortgage lender but have the backing or guarantee from a government entity should a borrower default on their loan. Because of this backing, there is less risk to the lender. Therefore, these types of loans offer more flexibility in minimum credit scores, allow less-than-perfect credit histories, and have little to no down payment requirements.

These types of loans include:

 

FHA

Backed by the Federal Housing Administration, FHA loans are a smart choice for first-time and repeat homebuyers with little saved for a down payment, and those with lower credit scores. In general, a credit score of 580 is required and a minimum of 3.5% down.

While there is no maximum or minimum income needed to qualify for this loan, it should be noted that FHA limits the maximum amount you can borrow. These limits are based on property values in a given geographical location. To see the loan limits for your area, visit the  FHA MORTGAGE LIMITS PAGE.

 

FHA $100 Down Program

Under this loan option, first-time and repeat borrowers can purchase a HUD-owned  property for just $100 down! While investors can buy HUD-owned homes, the FHA $100 down payment program is only available to buyers who intend on living in the home as their primary residence. HUD homes won’t be listed on sites like Realtor.com or Zillow. Instead, potential buyers can go to the HUD Home Store and see what’s available in a particular area.

 

USDA Rural Development (RD)

Looking for a home with a ZERO down payment requirement? And do you prefer pastures over pavement? Then the RD loan may be right for you!

Backed by the United States Department of Agriculture, the USDA RD loan offers more lenient credit and bankruptcy guidelines as compared to conventional loans. With more favorable loan terms and a 0% down payment requirement, this mortgage opens up opportunities for those who may not qualify for a conventional loan.

Borrowers may be first-time or repeat homebuyers, but borrowers cannot exceed income guidelines and the property must be located as in area deemed rural by the USDA. The see if the home you want to buy is eligible for RD financing, talk to your MiMutual Mortgage Loan Officer, or check out the program’s eligibility program at https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do

VA

Veterans, active-duty service members, and eligible spouses can qualify for the VA loan. Backed by U.S. Department of Veteran Affairs, this program requires 0% down payment and is available to first-time and repeat buyers. Not only can borrowers qualify for 100% financing, but the fees that can be charged are limited by the government, making this an affordable option for those who’ve serve.

 

3.Gift Funds

Another way to minimize your down payment cost is through gift funds. A gift fund is money given by someone like a family member to help a homebuyer cover the down payment or closing costs. Depending on the loan program, you may be able to use up to 100% of your down payment from gift funds.

Who the funds can come from and how much of the down payment will need to come from the borrower vs from gifts will vary depending on the loan type. All lenders, however, will require a gift letter. The letter should include the donor’s contact information, the relationship to the borrower, the amount of the gift and that the money does not have to be paid back.

-FHA will allow the down payment to be 100% gifted and funds can come from a family member, close friend, a charitable organization and employer or labor union.

-VA doesn’t require a down payment, but fees can be reduced if at least a 5% down payment is made. Gift funds can be accepted from just about any donor as long as the donor is not directly involved in the transaction.

-Like VA, USDA does not require a down payment, but gift funds can help cover your out-of-pocket closing costs and can come from anyone who doesn’t have an interest in the transaction.

-Conventional loans allow some of the down payment to be covered by gifts but acceptable donors are limited to family members and romantic partners. If you are buying a single-family home, the entire down payment can be gifted. But if you are buying a multi-unit, you will need to put at least 5% down of your own money.

 

4.Grants

Grants are financial assistance programs designed to help buyers cover the cost of buying a home. These programs vary greatly in the amount of assistance and the qualifying factors. They are offered through state-sponsored programs, local communities, non-profit organizations, and sometimes employers. One thing they all have in common – the funds don’t need to be paid back!

Each grant program has its own eligibility requirements. Examples may include household income limits, credit score minimums, geographic restrictions, membership, or employment status and more.

Check with your city and county government housing departments and local non-profit agencies for homebuyer grants specific to your area. You can also find local grant programs through the U.S. Department of Housing and Urban Development (HUD) directory of homebuying programs.

 

5.Down Payment Assistance (DPA)

Coming up with a down payment can be challenging and grants may be hard to come by. Another great way to help reduce your down payment costs is through down payment assistance programs.

These are offered through local, state, and national providers. They vary greatly in the amount of assistance granted, who can qualify and whether the assistance is forgivable or required to be repaid.

Assistance Through State Programs:

State housing finance agencies (HFAs) offer a wide range of assistance programs that are specific to the state they are in and vary in the amount of assistance and qualifying factors. These agencies team up with trusted, qualified lenders, such as MiMutual Mortgage, to offer the opportunity of homeownership to a broader range of borrowers. Working with one of our Loan Officers is the best way to know what assistance and programs are available for you.

Assistance Through National Programs:

MiMutual Mortgage offers a variety of down payment assistance programs that can be used nationally. Specific criteria and features will vary depending on the program and can be paired with FHA or Conventional financing. Like state programs, the best way to know what assistance will be available or work best for your particular situation is to speak with a MiMutual Mortgage Loan Officer.

Saving up for a down payment can be hard. But buying a home doesn’t have to be! Our Loan Officers will customize a home buying strategy that makes sense for your budget and homeownership goals. Feel the pride of becoming a homeowner for less than 5% down!