Putting 20% down on a home might be ideal, but it isn’t necessary to put off purchasing a home because you can’t swing such a sizeable down payment. Research from the National Association of Realtors indicates that a 12% down payment was the median for all 2019 homebuyers. For first-time homebuyers, the median dropped to 6%, while repeat buyers paid a median down payment of 16%. Here are the best low down payment options for homebuyers.

Government-Backed Loan Options

Government-backed loans are mortgages that the federal government guarantees. They open the door of homeownership for eligible borrowers while limiting the risk to lenders. If borrowers don’t fulfill their loan obligations and default on their mortgage, the government ensures the lender receives their cash.

Most of these programs require borrowers to purchase mortgage insurance to protect against default. Paying a monthly insurance premium may lead to higher overall costs, but the long-term investment benefits are often worth the price. Three government-backed mortgage programs allow less than a 20% down payment on a home.

Get a 3.5% Down Loan Through the Federal Housing Administration

FHA-backed loans are the most common housing loan type, garnering 53% of the mortgage market in a 2021 NAR homebuyers survey. These loans aren’t just for first-time buyers. Anyone meeting the financial eligibility requirements can apply, as long as the loan is for their primary residence.

This type of mortgage is offered through FHA-approved lenders, but it’s widely available across the U.S. To receive the 3.5% down payment offer, you must have a credit score of 580 or higher. However, if your credit score is less than 580 but at least 500, you may be eligible for a loan with 10% down.

The Federal Housing Administration requires you to have mortgage insurance offered through the FHA. You also must pay a 1.75% premium to be approved for the loan. You will have premium payments for the life of the loan unless you put down 10%, in which case your premiums will end after 11 years.

See if You Qualify for a Department of Veterans Affairs’ 0% Down Loan

NAR’s survey revealed that 33% of respondents had VA-backed mortgages. These loans are a great option for those who qualify. The Department of Veterans Affairs’ program is for current and honorably discharged military members.

The program allows for 0% down loans. However, it’s important to note that a lender can still require a down payment as a condition of the loan. VA-backed loans also allow borrowers to take advantage of competitive interest rates, further reducing the cost of buying a home.

As an additional perk, these loans don’t require mortgage insurance, despite the low- to no-down payment offerings. The VA limits closing costs and allows you to get the benefits of this program throughout your lifetime, no matter how many times you buy a house.

Buy a Home in a Rural Area for 0% Down With a US Department of Agriculture Loan

The USDA created a loan program to help rural economic conditions and encourage homeownership in these areas. Given the nature of the rural housing market, this loan type made up only 15% of the loans in the NAR survey.

If you are interested in living in a rural or suburban area, these loans are one of the best available for homebuyers. Interest rates with USDA loans are typically lower than conventional mortgages, and you won’t need to come up with a down payment.

To qualify, you must make no more than 115% of the median household income in the area you want to buy a home. Your new home also needs to be your primary residence. As another bonus, the USDA has no credit score requirements, though you will have to demonstrate that you can pay your loan and manage your debts.

USDA loans do require insurance. You will pay an upfront fee of 1% of the amount financed, which is usually rolled into the loan, and up to 0.35% in monthly premiums included in your mortgage payment.

Conventional Loan Options

Conventional loans are mortgages that do not receive government backing. These loans traditionally required borrowers to put down 20% on a new home. However, these days you can find conventional loans with down payments as low as 3%.

You will need to procure private mortgage insurance when you go the conventional route and pay less than 20% down. The difference between private and government mortgage insurance is that PMI on conventional loans only lasts until you achieve 20% equity in your home. Three popular conventional loans have down payment requirements of less than 20%.

Get a 3% Down Mortgage With a Conventional 97 Loan

A Conventional 97 loan allows homebuyers to purchase a property with a down payment of just 3%, which is lower than the minimum down payment offered with FHA loans. However, eligibility requirements for these loans are more stringent than the FHA requires.

Though most lenders establish a minimum credit score of 620, the reality is that you generally won’t get competitive interest rates unless your credit score is pushing into the mid-700s. You must also demonstrate that your debt-to-income ratio is no more than 36% for the best rates.

Move Into a New Home With 3% Down Through Home Possible

Freddie Mac is one of two government-sponsored enterprises in the mortgage market. These two entities often purchase conventional loans from financial institutions after the sale closes.

However, low-income buyers can utilize Freddie Mac’s Home Possible program to move into a new home with just 3% down. This program allows borrowers to have a co-signer who isn’t living on the new property, providing a means for boosting credit score requirements to get better interest rates and qualify for low down payments.

Find out if You Qualify for a 3% Down Loan With HomeReady

Fannie Mae is the second government-sponsored entity, and it too offers a program to help lower-income buyers get into a new home with down payments as low as 3%. Borrowers still need a credit score of at least 620, while those with 680 or higher credit scores may get better interest rates.

The HomeReady program provides borrowers the opportunity to boost their incomes by renting out a room or apartment in their new home. The tenant can be a family member, friend or another renter. Borrowers must use the property as their primary dwelling.

Shop Around for the Best Low Down Payment Option for You

The USDA and VA programs are arguably the best options for mortgages with low down payments; however, they are only available to a limited portion of the population. You either must purchase a home in a qualifying rural or suburban location or be a current or former military member.

The remaining options on this list are all competitive choices, and there is no clear best option. You may want to shop around and talk to loan officers to determine which one gives you the greatest benefits while remaining within your budget.