7 Ways to Buy a Home Without a 20% Down Payment

Posted by Laine Smith on 2/28/16 12:35 PM

Topics: Home Buying

A major hurdle for some first-time homebuyers is coming up with the funds for a down payment or closing costs on their home purchase. According to a recent Bankrate.com survey non-homeowners were asked what percentage of the total cost they would need to contribute as a down payment on a potential home purchase. Nearly 2 in 10 said somewhere between 11% and 20%, while another 17% said between 6% and 10% down.

Even more notable, almost a quarter of non-homeowners said they had no idea how much they would need for a down payment to buy a home. Here are 7 loan options for eligible homebuyers who wish to buy with little to no money down.


Image courtesy of nongpimmy at FreeDigitalPhotos.net


The Illinois Housing Development Authority recently announced a new loan program making homeownership even more affordable for first-time homebuyers. The 1stHomeIllinois program offers $7,500 in down payment and/or closing cost assistance (forgivable after 5 years and requires no down payment). To be eligible, you must be a first-time homebuyer or someone who has not owned a home in the last three years (veterans are exempt).

Available in select Illinois counties, the funds for 1stHomeIllinois are limited, so now is the time to act.

USDA Rural Development Loan

There are several benefits to the United States Department of Agriculture's Rural Development Loan, specifically the allowance of 100 percent financing. Other benefits include competitive interest rates, low monthly PMI, and flexible credit guidelines. The goal of this program is to provide individuals and families the ability to purchase homes in rural areas across the United States.

For more benefits and eligibility requirements, click here.

VA Loan

The United States Department of Veteran Affairs created the VA Loan program in 1944 to help level the playing field for veterans who were not able to build a financial nest egg while in the service. VA borrowers benefit from 100 percent financing, no mortgage insurance premiums, and a competitive interest rate.

For more benefits and eligibility requirements, click here.

@HomeIllinois Mortgage Program

The @HomeIllinois mortgage is a loan option from the Illinois Housing Development Authority. Unveiled in 2015, the program offers ala carte options for first-time and repeat homebuyers to gain home financing with as little as $1,000 out of pocket. Homebuyers can choose options tailored to their financing needs, including $5,000 down payment or closing cost assistance, lender-paid mortgage insurance, and a federal tax certificate.

For more benefits and eligibility requirements, click here.

FHA Loan

The Federal Housing Administration is the largest insurer of mortgages in the world. Often referred to as a "first-time homebuyer loan", FHA's financing option is available to first-time and repeat borrowers, including refinances. While buyers do need to provide 3.5 percent of the purchase price for down payment, those funds can be gifted from a family member or a grant from a state or local government down payment assistance program.

FHA loans also allow higher seller contributions than most conventional loans, meaning a homebuyer can negotiate for the seller to pay for most, if not all, of their closing costs which would minimize out-of-pocket expenses.

For more benefits and eligibility requirements, click here.

Fannie Mae HomeReady

Fannie Mae’s last 3% down payment option, MyCommunityMortgage®, was retired in late 2015, but HomeReady is a new product that appeals to homebuyers who are struggling to meet down payment requirements, build mortgage-ready credit or qualify due to other monthly debts.

HomeReady makes home financing accessible to creditworthy low- to moderate-income homebuyers by:

  • Allowing the use of extended-household member incomes.
  • Providing up to 97% financing, as well as flexible sources of funds for the down payment and closing costs.
  • Establishing flexible credit guidelines for borrowers by allowing the use of non-traditional credit sources.
  • Fostering sustainable and informed homeownership through required online homeownership education courses.
  • Allowing non-occupant borrowers.

For more benefits and eligibility information on the HomeReady program, click here.

Conventional Loan

A conventional loan is financing that is not insured or guaranteed by the federal government. A conventional loan adheres to guidelines set by Fannie Mae and Freddie Mac. The following are ways that conventional loans differ from government loans:

  • Requires a minimum 3 percent down payment
  • Interest rate varies based on credit score and loan term
  • Mortgage insurance premiums vary based on down payment amounts

Conventional loans also give borrowers the option of having a fixed or adjustable rate mortgage, as well as choosing a loan term. For more information about benefits and eligibility requirements, click here.

Buying a home is likely the biggest investment an individual will make in their lifetime, but it's a common misconception that a 20 percent down payment is required. For more eligibility information, contact one of our mortgage bankers.

For more information about buying and financing your first home, download our free Mortgage 101 Handbook, a great resource for first-time buyers.

Download: Mortgage 101 Handbook

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