What Are the Down Payment Options for Home Buyers?

In 2023, there are several different down payment options for home buyers that may not have existed in previous years. Today’s buyer does NOT need to have a 20% down payment in order to buy a home. 

Nothing makes our real estate hearts hurt more than hearing about a buyer finding the perfect home for their family and not moving forward because they were unaware of the financing options that might have helped them secure their ideal home. Of course, we want our clients to be responsible and not spend above their means, but the perfect home may be within reach! Let’s talk about the different low down payment financing options that are available so when the perfect home comes on the market, you are ready to buy.

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Loan Type Determines the Minimum Down Payment

The first step is to speak with a lender about what types of loans you may qualify for and get pre-approved. (We highly recommend Meggan McDonald with Supreme Lending!) There are 4 different types of loans available to buyers in our area. Here are the 4 loan types and their minimum down payment amounts:

  • VA loans are an option for military personnel and these loans are backed by the Department of Veterans Affairs. Qualifying borrowers who meet these eligibility requirements can buy a home with a VA loan with no money down.
  • FHA loans are insured by the Department of Housing and Urban Development (HUD). Like the VA loans, they are guaranteed by the government, but are open to anyone in the United States. The minimum down payment on an FHA loan is currently 3.5% of the purchase price for qualifying borrowers. Check out this guide to FHA loans for more details.
  • USDA loans are eligible for individuals who are purchasing a home in a rural area and are backed by the US Department of Agriculture. For qualified borrowers purchasing an approved rural home, no down payment is required. Check out this overview of the program for more information.
  • Conventional loans are loans that aren’t VA, FHA, or USDA. Obviously. There are currently conventional loan programs available that have a 5% minimum down payment for qualified buyers. Check with your trusted lender for more details.

Loan Type and Down Payment Amount Determine PMI

The next thing for a buyer to consider is PMI (Private Mortgage Insurance). Unless a buyer is putting down a 20% down payment, they may be charged a monthly PMI fee, but this varies based on loan type:

  • VA. VA loans do not charge PMI. There is a funding fee charged to the borrower, but this can be financed into the loan.
  • FHA. For buyers purchasing a home using an FHA loan with less than 20% down, the buyer will have to pay monthly PMI for the life of the loan. There is also a one-time, upfront PMI fee that can be financed into the loan.
  • USDA. Buyers are responsible for an upfront funding fee with USDA that can be financed into the loan, and an annual fee is charged.
  • Conventional. Generally for Conventional loans, PMI is charged until the borrower has 20% equity in the home. Some lenders have options for qualified borrowers that allow them to put 5-15% down and pay the PMI up-front in a lump sum. The lump sum is charged at closing and oftentimes, we can negotiate with a seller to help pay a portion of this cost. Many clients benefit significantly using the upfront PMI strategy as it lowers their monthly payment by eliminating an ongoing monthly PMI charge.

First Time Buyer Programs

  • If you are a first-time buyer (i.e. anyone who hasn’t owned a primary residence in the previous 3 years), there are additional variants of loans available in our area.
    • The National Housing Fund allows for up to 5% down payment and/or closing cost assistance.
    • For qualifying purchasers buying a home in Missouri, there is assistance money available for different cities. Check out the HUD website for more information on a program near you.
    • The state of Kansas has a similar cash assistance program which grants qualifying borrowers up to 4% to go towards their closing costs and down payment. See the Kansas Housing Assistance Program website for more information.
  • All financing options are subject to lender approval and some options are also subject to income restrictions.
  • Some buyers qualify for several different loan programs. For information on deciding which loan type is right for you, be sure to talk with a trusted lender. A good lender will not just take a look at your credit history, income and current debt to see what loan program works for you; they will look at this information AND talk to you about your financial goals, how long you plan to stay in the home you are purchasing and help you weigh the pros and cons of each loan type to decide which one is best for your particular situation. See our Resources section for a great lender to check with!
  • Even if a buyer is purchasing a home with a 100% loan program, closing costs will still need to be paid.

We hope now that you know the down payment options for home buyers and different types of loans, you can feel educated to make the right decision for yourself moving forward. Of course, if this is still overwhelming or you have more questions, we are happy to be a resource for you!