Low- and no-down-payment mortgage FAQs
What are the pros and cons of low- and no-down-payment home loans?
The pros: You don’t have to wait until you have saved enough money for a large down payment. That means you can become a homeowner and start building equity sooner.
The cons: Low-down-payment loans include extra expenses. Conventional loans with down payments under 20%, along with FHA and USDA loans, require buyers to pay for mortgage insurance, which protects the lender in case the borrower defaults. VA loans have a one-time VA funding fee.
You might also pay a higher interest rate with a low-down-payment mortgage.
» MORE: Check out first-time home buyer programs in your state
Do I have to be a first-time home buyer for a low- or no-down-payment mortgage?
Not always. For example, some low-down-payment loans assist buyers in economically disadvantaged areas. VA loans cater to borrowers with military connections, and USDA loans are for buyers in rural and suburban areas.
Some conventional loans, such as HomeReady and Home Possible, have income limits rather than first-time home buyer requirements — though the programs also have first-timer spinoffs.
» MORE: HomeReady and Home Possible allow 3% down
What’s the credit score required for a low- or no-down-payment mortgage?
To qualify for the lowest 3.5% down payment on an FHA loan, you’ll need at least a 580 credit score. With a score between 500 and 579, you’ll need a 10% down payment.
On low-down-payment conventional loans, a 620 score or better is generally required.
The required credit score for VA loans varies by lender. Lenders often require a 620 FICO score and can set other qualifications for VA loans, so it’s always a good idea to shop more than one lender.
USDA loan applicants with credit scores of 640 and higher can qualify for streamlined processing. Those with lower scores have to go through a more rigorous underwriting process. Applicants with no credit score or limited credit histories can qualify for USDA loans with nontraditional credit information, such as rental and utility payments.
» MORE: FHA loan credit score requirements
Are there income limits on low-down-payment mortgages?
Sometimes but not always. First-time buyers are often excluded from income limitations. Same goes if you’re buying in a particular targeted area, or if you’re a military veteran.
Yet, just because you can put only a little down doesn’t always mean you should.
» MORE: What down payment is required?
Can I get a low- or no-down-payment home loan with bad credit?
If you have the income and recent payment record that shows an ability and willingness to repay a loan, you can qualify — even with a checkered credit history.
But the setback that dinged your credit has to be in the past. If you’re still worrying about paying your bills on time, it’s best to wait on buying a house, no matter how tempting low down payments may be.
» MORE: How credit score affects your mortgage rate
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