By Kathleen Willcox

Apr 25, 2023

While a 20% down payment is a benchmark everyone would like to strive for, it certainly isn’t the norm. According to a recent report from the National Association of Realtors®, almost half of consumers think they need to pay a minimum of 16% of a home’s value to snag a mortgage—but that just isn’t the case. On average, the down payment for a home is 7% for first-time homebuyers and 17% for those who’ve done it before.

But is it possible to put 5%—or even 0%—down on a house?

Down payments of 0% to 5% were a dime a dozen before the housing crisis of 2008. Nowadays, they’re harder for buyers to snag—but they’re not impossible to find.

If a 20% down payment is out of your reach, consider the following low down payment programs and alternatives. Here’s how to make your homeownership dreams a reality for less than you bargained for.

Low down payment government programs

USDA loans

There are a plethora of excellent government loans that require a zero or very low down payment—if you qualify.

“The USDA loan is currently one of the best loan options to buy a home with no money down,” says Sal Dimiceli Sr., owner of Lake Geneva Area Realty in Wisconsin.

The current interest rate for the U.S. Department of Agriculture loan is 3.25%, and you need to have a credit score of 640 or higher, Dimiceli says. The required debt-to-income ratio is 41%.

But you can’t get a USDA loan if your household income turns out to be more than 115% of your area’s median income.

“For applicants with lower scores, the underwriting procedure is sort of complex in this inflated market climate,” Dimiceli says. “Applicants with no credit scores or short credit histories may be eligible for USDA loans with unusual credit information, such as rental and utility payments.”

VA loans

The U.S. Department of Veterans Affairs backs VA loans for active-duty military personnel, veterans, and their spouses.

“Borrowers of VA mortgages benefit from having no down payment requirements and often cheaper interest rates than those of normal mortgages,” says Sara Sharp, a real estate attorney and founder of SK&S Law Group. “A financing fee is required when applying for a VA loan. It serves as insurance for the lender in the event of default.”

Your VA funding fee is a one-time payment, and the amount will depend on the amount of your loan and other factors.

HUD homes

The U.S. Department of Housing and Urban Development is also an excellent resource for federal, state, and local loan programs, says Ann Martin, director of operations at CreditDonkey in Pasadena, CA.

HUD home is a property in foreclosure that was purchased with a Federal Housing Administration loan (more on FHA loans later). The previous owner was unable to pay the monthly mortgage, so the house ended up in foreclosure, and HUD took ownership of the property.

You can search for active HUD homes, often priced below market value, on the HUD website. There, you can also find information about special programs and incentives for homebuyers.

“Many of these programs can provide up to 100% of your total required down payment, and most allow you to receive assistance from multiple sources,” says Martin. “Combine this with private mortgage insurance if your down payment doesn’t hit the 20% threshold, and you can find a way to buy a home without spending anything out of pocket.”

FHA loans

Federal Housing Administration loans are worth considering, too, especially for first-time homebuyers.

FHA loans take down payments as low as 3.5%,” says Tim Doman, an investment analyst and CEO of Top Mobile Banks. “While FHA loans are popular among first-time homebuyers, they do require upfront and annual mortgage insurance premiums.”

Borrowers must have a credit score of at least 500, a debt-to-income ratio of less than 43%, a stable income, and proof of employment.

Pay PMI on a conventional loan

If you don’t have a large nest egg for a 20% down payment, don’t stress. You can still obtain a loan with less money down as long as you agree to pay private mortgage insurance, or PMI.

“PMI is another way to reduce your money down upfront,” says Kevin Watson, a senior home loan strategist for Churchill Mortgage in Brentwood, TN. “This was developed in 1957 to help borrowers who don’t have a down payment of 20% or more buy their home.”

Borrowers can put as little as 5% down on a conventional loan—and less with some types of loans—in return for paying a monthly mortgage insurance premium. Expect your PMI payment to range from about 0.3% to 1.15% of your home loan.

On a conventional loan, you can ask your lender to drop the mortgage insurance payment when you can demonstrate you have 20% equity.

“When the loan reaches the scheduled 22% equity based on the initial purchase value, the mortgage insurance will automatically drop,” Watson says.

Gifted down payment

You could also ask a generous benefactor for help—if you’re lucky enough to have one.

“Lenders don’t want to see you borrow any part of the down payment,” says G. Brian Davis, real estate investor and founder of Spark Rental. “But you can accept a gift from friends or family members that doesn’t need to be repaid. Lenders will ask for a signed letter from your benefactor, stating that the cash is a gift and not a loan.”