How to Buy a Home Without a 20% Down Payment

Posted by Laine Smith on 9/17/15 8:00 AM

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. Contrary to common belief, you don’t need a 20% down payment to purchase a home. Here are some of your options for buying a home with a low to no down payment option.



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's Mae mortgage program aims to provide an affordable financing option for qualified low to moderate income borrowers. While a 3 percent down payment is required, it can come from personal funds, gift funds or government grants. MyCommunity Mortgage® also boasts low private mortgage insurance rates and underwriting flexibility for borrowers with non-traditional forms of credit.

For more benefits and eligibility requirements, 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:

  • Require minimum 5 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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