Buying a home can be challenging, especially when it comes to saving enough for a down payment.
While many people believe they need 20 percent of the home’s price upfront, the truth is there are plenty of ways to buy a home with much less — thanks to low-down-payment loan programs and down payment assistance.
Why Down Payments Can Seem Overwhelming
Saving up for a large down payment is one of the biggest roadblocks for many aspiring homeowners, especially first-time buyers. Home prices have skyrocketed in recent years, with costs rising much faster than wages.
Add to this increasing property taxes, insurance premiums, and higher mortgage rates, and the dream of buying a home can feel like it’s slipping out of reach.
For example, the National Association of Realtors reported that in May, the median price of an existing home was $422,800. A 20 percent down payment on that purchase would be over $84,000 — a significant amount that many buyers struggle to save.
In pricier states like California, down payments can far exceed that, making homeownership feel impossible for some.
Good News: You Don’t Actually Need 20 Percent Down
The idea of needing 20 percent up front is a misconception. In reality, many programs today allow buyers to put down as little as 3 to 10 percent.
According to the National Association of Realtors, first-time buyers from 2018 to 2024 typically made down payments between 6 and 10 percent, far below the myth of 20 percent.
Loan Options for Lower Down Payments
If you’re a first-time homebuyer, there are loan programs designed to help you overcome the hurdle of a big down payment. Here are a few examples:
- FHA Loans: Backed by the Federal Housing Administration, these loans allow buyers with good credit to put down as little as 3.5 percent. This can reduce the upfront amount needed considerably. For a median-priced home of $422,800, a 3.5 percent down payment would be just over $14,000.
- Conventional Loans: Many first-time buyers use conventional fixed-rate loans from private lenders. Fannie Mae and Freddie Mac offer special loan programs like HomeReady and HomeOne with minimum down payments as low as 3 percent.
- VA Loans: If you’re a military veteran, VA loans let qualified buyers purchase homes with no down payment at all — 0 percent!
Important Considerations for Low Down Payments
While low-down-payment options are helpful, keep in mind two important points:
- Mortgage Insurance Costs: Loans with a low down payment (where you borrow more than 80 percent of the home’s price) often require private mortgage insurance (PMI). This adds to your monthly costs and can last until you pay off enough of the loan balance.
- Higher Loan Amounts: A smaller down payment means borrowing more money, potentially leading to higher monthly payments and more interest over the life of the loan.
How Down Payment Assistance Programs Work
If you don’t have enough saved for a down payment, there are programs specifically designed to help. Down payment assistance can come from state and local governments, nonprofit organizations, or private lenders. These programs provide financial help to cover down payments, closing costs, or even interest rate reductions.
Some programs offer grants, which don’t need to be repaid. Others provide loans with favorable terms.
Many focus on first-time buyers or specific groups like teachers, first responders, and veterans. However, nearly 40 percent of these programs are also available for repeat buyers.
Who Qualifies for Assistance?
Eligibility varies by program. Some require buyers to meet income limits, though many allow moderate-income households to qualify.
For example, income limits may be set at 100 to 120 percent of the local median income. Others have no income requirements at all.
Even if you’ve saved money on your own, these programs can help you put down a larger amount to lower monthly payments, reduce long-term interest, or improve your chances of loan approval.
In fact, research shows that one-third of declined mortgage applications could have been approved if borrowers had accessed available down payment assistance.
Why You Should Consider Down Payment Assistance
In today’s tough housing market, affordability is a difficult challenge. Down payment assistance programs won’t solve every problem, but they can make homeownership easier by helping buyers meet minimum requirements, lower financing costs, and increase their chances of getting loan approval.
If you’re thinking about buying a home, these programs are worth exploring.
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