Think you need 20% down to buy a home? Depending on your qualifications, you may have Conventional, FHA, VA, or Down Payment Assistance options that require considerably less cash upfront.
For many people thinking about buying a home, one of the biggest obstacles isn’t finding the right property.
It’s figuring out how much money they’ll need for the down payment and closing costs.
A common misconception is that you need 20% down to purchase a home.
You may not.
Depending on your qualifications and the mortgage program, options may include Conventional financing with as little as 3% down, FHA financing with 3.5% down, potential zero-down VA financing for eligible borrowers, and Down Payment Assistance (DPA).
For qualified borrowers, certain FHA DPA options available through Prime Choice Funding may even combine a 96.5% FHA first mortgage with 3.5% DPA, resulting in up to 100% combined loan-to-value (CLTV).
Certain DPA options may provide as much as 5% assistance, potentially helping with both the required down payment and eligible closing costs.
That doesn’t mean everyone qualifies for 100% financing or that a buyer will necessarily have $0 cash due at closing.
But it does mean that waiting until you’ve saved 20% may not always be necessary.
Do You Really Need 20% Down to Buy a Home?
No.
Putting 20% down can provide benefits, but it isn’t a universal mortgage requirement.
Depending on your circumstances, you may be able to explore:
Conventional financing — potentially as little as 3% down
FHA financing — potentially as little as 3.5% down
VA financing — potentially no down payment for eligible borrowers
FHA + DPA — certain qualified borrowers may receive assistance covering the required 3.5% FHA down payment
Enhanced DPA — certain programs may provide up to 5% assistance toward the down payment and/or eligible closing costs
The right option depends on your credit profile, income, debts, assets, occupancy, property, loan amount, and applicable program requirements.
Option 1: Conventional Financing With as Little as 3% Down
Certain Conventional mortgage programs may allow qualified borrowers to purchase a primary residence with as little as 3% down.
For example, on a hypothetical $400,000 home:
20% down = $80,000
3% down = $12,000
That’s a substantial difference in the amount needed for the down payment.
Certain low-down-payment Conventional programs may have additional requirements, such as income limits, first-time homebuyer requirements, homebuyer education, or other eligibility criteria.
Private mortgage insurance (PMI) will generally apply when a Conventional borrower finances more than 80% of the home’s value, subject to applicable requirements.
What Credit Score Is Needed for a Conventional Loan?
There isn’t one credit-score number that applies to every Conventional loan. Credit requirements can depend on the particular program, underwriting method, lender requirements, and overall borrower profile.
The important point is:
Don’t assume your credit score automatically disqualifies you.
A mortgage professional can review your complete credit profile and determine which programs may be available.
Option 2: FHA Financing With as Little as 3.5% Down
FHA financing can be another option for buyers who have limited funds available for a down payment or whose circumstances may not fit certain Conventional programs.
Qualified FHA borrowers may be able to purchase with 3.5% down, subject to FHA and lender requirements.
On a hypothetical $400,000 home:
3.5% down = $14,000
FHA financing includes mortgage insurance requirements, so buyers should compare the entire loan structure and estimated monthly payment rather than focusing only on the down payment.
FHA financing becomes particularly interesting when paired with another potential option:
Down Payment Assistance.
Option 3: FHA + DPA May Provide Up to 100% Financing
Certain FHA Down Payment Assistance options currently available through Prime Choice Funding may combine:
96.5% FHA First Mortgage + 3.5% DPA = Up to 100% CLTV
For a qualified borrower, the DPA may potentially cover the 3.5% required FHA down payment.
This can be especially valuable for buyers who have sufficient income to manage a mortgage payment but haven’t accumulated a large amount of savings for a down payment.
620 Minimum FICO May Be Available
Certain FHA DPA options currently available through Prime Choice Funding may be available with a:
620 Minimum FICO with qualifying AUS approval
Manual underwriting may also be available with a:
660 Minimum FICO
Manual underwriting is subject to applicable FHA and program requirements and may have additional restrictions.
The 620 FICO requirement applies to certain DPA programs available through PCF. It should not be interpreted as a universal minimum credit score for every FHA mortgage.
Credit score alone also doesn’t determine approval. Credit history, income, employment, debts, debt-to-income ratio, assets, property eligibility, occupancy, and other underwriting factors may apply.
Option 4: Up to 5% Down Payment Assistance
Some qualified buyers may need help with more than just the required FHA down payment.
Certain DPA options available through Prime Choice Funding may provide up to 5% of the sales price or appraised value, whichever is less, toward the down payment and/or eligible closing costs.
That can create a financing structure of:
96.5% FHA First Mortgage + Up to 5% DPA
Why could the assistance exceed FHA’s 3.5% minimum down payment?
Because with certain DPA options, the additional assistance may potentially be used toward eligible closing costs.
For example, a 5% DPA structure could potentially provide 3.5% toward the down payment and an additional 1.5% toward eligible closing costs, subject to program requirements.
This can be particularly useful because the down payment is only one part of the upfront expense of buying a home.
Option 5: 0% Interest, Deferred, and Potentially Forgivable DPA
Not every DPA program works the same way.
Some assistance is structured as a second mortgage with interest and required monthly payments.
Other programs can work differently.
Certain FHA DPA options available through Prime Choice Funding may provide qualified borrowers with 3.5% assistance through a subordinate lien with a 0% note rate and deferred payments, including a potential three-year forgivable option when all applicable program requirements are satisfied.
With this type of structure, the second lien may have:
0% interest
No monthly payment
Deferred repayment
A potential three-year forgiveness feature
However, forgiveness isn’t automatic.
Depending on the program, repayment may be triggered by events such as selling the property, transferring title, refinancing the first mortgage, paying off the first mortgage, or no longer satisfying applicable occupancy and program requirements.
Before choosing DPA, it’s important to understand:
Does the assistance accrue interest?
Is there a monthly payment?
Is repayment deferred?
Can the balance be forgiven?
How long must I occupy the property?
What happens if I sell or refinance?
The DPA program offering the largest amount isn’t necessarily the best option. The complete financing structure matters.
Do You Have to Be a First-Time Homebuyer to Get DPA?
Not always.
This is an important point for both first-time buyers and people who have previously owned a home.
Some DPA programs specifically require first-time homebuyer status.
Others do not.
Certain FHA DPA options available through Prime Choice Funding may be available to eligible first-time and repeat homebuyers.
These particular options are designed for purchase transactions involving a primary residence, subject to applicable FHA and program requirements.
So if you’ve owned a home before, don’t automatically assume that Down Payment Assistance isn’t available to you.
Some DPA Options Have No Income Limits
Another common assumption is that DPA is available only to lower-income households.
That isn’t always the case.
Many state and local assistance programs do have household-income restrictions.
However, certain FHA DPA options available through Prime Choice Funding currently have no program-specific income limit.
Borrowers still need sufficient qualifying income and must meet applicable FHA, underwriting, credit, and program requirements.
But buyers shouldn’t automatically assume that they make too much money to explore DPA.
How Does Debt-to-Income Ratio Work With DPA?
Your debt-to-income ratio (DTI) compares certain monthly debt obligations with qualifying monthly income.
For certain FHA DPA options available through Prime Choice Funding, automated underwriting may follow applicable AUS findings.
For eligible manually underwritten transactions, certain programs may permit a maximum 45% DTI, subject to FHA guidelines, compensating factors, and other program requirements.
Another important consideration is the DPA structure itself.
If the subordinate DPA loan requires a monthly payment, that payment may need to be included when calculating the borrower’s qualifying ratios.
By contrast, a qualifying 0% deferred-payment DPA option with no required monthly payment may be treated differently under the applicable program guidelines.
This is why two DPA options providing the same amount of assistance may affect qualification differently.
Option 6: VA Financing May Provide Zero-Down Financing
Eligible Veterans, active-duty service members, and certain surviving spouses may have another powerful home-purchase option.
VA financing may allow an eligible borrower to purchase with no down payment in many circumstances.
VA-backed loans also generally don’t require monthly private mortgage insurance (PMI).
A VA funding fee may apply unless the borrower qualifies for an exemption.
What Credit Score Is Required for a VA Loan?
VA itself does not establish one universal minimum credit score for all VA-backed mortgages.
Individual lenders may have their own credit requirements.
That’s an important distinction.
If an eligible Veteran has been told they don’t qualify because of one lender’s credit requirements, it may be worth exploring whether other VA lending options are available.
Option 7: Gift Funds May Help
Depending on the mortgage program and transaction, eligible gift funds may be used toward certain home-purchase expenses.
Requirements can vary regarding:
Who can provide the gift
How the funds must be documented
The acceptable source of the funds
How the money may be used
For some buyers, the solution may involve a combination of:
Personal Savings + Gift Funds + DPA + Seller Concessions
The exact combination permitted depends on the mortgage program and transaction.
Option 8: Seller Concessions May Reduce Closing Costs
A seller may also be able to contribute toward certain buyer closing costs.
Depending on the mortgage program and transaction, eligible seller contributions may potentially help with expenses such as certain closing costs, prepaid expenses, and discount points.
For certain FHA DPA options available through Prime Choice Funding, interested-party contributions may be permitted up to 6% of the sales price toward eligible buyer closing costs, subject to applicable FHA and program requirements.
Seller concessions must be negotiated as part of the purchase agreement and are not guaranteed.
This is another reason the purchase offer and financing strategy should work together.
Option 9: A 2/1 Temporary Buydown May Reduce the Initial Payment
Certain purchase transactions may also permit a seller or builder to fund a 2/1 temporary buydown.
With a 2/1 temporary buydown, the interest rate used to calculate the borrower’s payment is temporarily reduced during the first two years.
Generally, the payment is calculated using a rate two percentage points below the Note rate during the first year and one percentage point below the Note rate during the second year. Beginning in the third year, payments are based on the full Note rate for the remaining term of the loan.
Certain FHA DPA options available through Prime Choice Funding may permit a seller- or builder-funded 2/1 temporary buydown on the first mortgage, subject to program requirements.
Importantly, the borrower must still qualify using the full Note rate, not the temporarily reduced rate.
A temporary buydown doesn’t permanently reduce the mortgage rate, but it can provide a lower initial payment when properly structured.
Down Payment Isn’t the Same as Cash to Close
This is especially important when discussing 100% financing.
A financing structure providing up to 100% CLTV doesn’t necessarily mean:
“$0 cash to close.”
A home purchase may still involve expenses such as:
- Appraisal
- Home inspection
- Loan closing costs
- Title and settlement charges
- Homeowners insurance
- Prepaid property taxes and insurance
- Initial escrow funding
- Earnest money
- Other applicable expenses
That’s why buyers should ask two separate questions:
How much down payment do I need?
and
How much cash will I need to complete the entire purchase?
Those aren’t necessarily the same number.
What Does $0 Minimum Borrower Contribution Mean?
Certain FHA DPA options available through Prime Choice Funding may have a $0 minimum borrower contribution requirement.
That’s significant, but it should not be confused with a guarantee of $0 cash to close.
The actual amount a buyer needs depends on the purchase price, financing structure, DPA amount, closing costs, prepaid expenses, earnest money, seller contributions, gift funds, and other transaction-specific factors.
That’s an important distinction whenever discussing 100% financing.
A Simple $400,000 Home Example
Consider a hypothetical $400,000 purchase price.
20% down: $80,000
10% down: $40,000
5% down: $20,000
3.5% down: $14,000
3% down: $12,000
Eligible VA financing: Potentially $0 down
Eligible FHA + 3.5% DPA: DPA may potentially cover the required FHA down payment
These are simplified examples.
They don’t include closing costs, prepaid expenses, mortgage insurance, VA funding fees where applicable, DPA repayment obligations, or other transaction expenses.
But they demonstrate why buyers shouldn’t automatically assume 20% down is their only option.
Which Home Financing Option Is Better?
There isn’t one mortgage that’s best for every homebuyer.
A borrower with strong credit and sufficient funds may find Conventional financing attractive.
Another buyer may benefit from FHA financing.
An eligible Veteran may find VA financing particularly compelling.
Someone who has sufficient qualifying income to support the mortgage but hasn’t accumulated enough for the down payment may want to explore DPA.
Another buyer may benefit from combining an eligible financing program with seller concessions or gift funds.
And a buyer concerned about the initial monthly payment may want to explore whether a seller-funded temporary buydown is available.
The goal isn’t simply to find the mortgage with the smallest down payment.
It’s to compare the available options and determine which financing structure makes sense for the borrower’s overall situation.
How Much Should a Buyer Actually Save?
There’s no single number that works for everyone.
A better approach is to consider three areas.
1. Down Payment
Determine how much your financing actually requires.
Then determine whether DPA, VA eligibility, gift funds, or another available option could reduce the amount you personally need to contribute.
2. Closing and Prepaid Costs
Estimate the other costs associated with completing the purchase.
Then determine whether eligible DPA, seller concessions, or gift funds may help with some of those expenses.
3. Savings After Closing
Don’t forget about life after you receive the keys.
Homeowners should consider maintaining savings for moving expenses, maintenance, repairs, and unexpected costs.
Putting every available dollar into a down payment isn’t necessarily the best strategy for every buyer.
First-Time Buyer or Already a Homeowner? Start With the Numbers
Although first-time homebuyers may find these options particularly useful, many of the strategies discussed here aren’t exclusively for first-time buyers.
If you already own a home or have owned one previously and are considering your next primary residence, don’t automatically assume you’re excluded from low-down-payment financing or DPA.
Before shopping for a home, consider finding out:
How much home can I reasonably afford?
What could my estimated total monthly housing payment be?
What does my credit profile qualify for?
Should I consider Conventional, FHA, VA, or another mortgage option?
Could I qualify for Down Payment Assistance?
Is a 100% CLTV financing option available for my situation?
Could I qualify for up to 5% DPA?
Can eligible gift funds be used?
Could seller concessions reduce my upfront costs?
Would a temporary buydown make sense?
How much money should I keep in savings after closing?
Understanding these numbers before seriously shopping can give you a much clearer picture of your purchasing power.
You May Have More Homebuying Options Than You Think
If you’ve been waiting because you believe you need 20% down, it may be worth taking another look.
Depending on your qualifications, potential options may include:
Conventional financing with as little as 3% down
FHA financing with as little as 3.5% down
Potential zero-down VA financing for eligible borrowers
FHA financing combined with 3.5% DPA for up to 100% CLTV
Certain FHA DPA options beginning at a 620 minimum FICO with qualifying AUS findings
DPA providing up to 5% assistance for qualified borrowers
Certain DPA options without program-specific income limits
0% deferred and potentially forgivable DPA options
Eligible gift funds
Seller concessions
Temporary buydown options
Not every borrower will qualify for every option, and mortgage and DPA program requirements can change.
But knowing what’s available can help first-time buyers, repeat buyers, and current homeowners planning their next purchase make a more informed decision.
The most important takeaway?
Don’t Assume You Need 20% Down Before Finding Out What You May Qualify For
Your path to homeownership may require considerably less upfront than you think.
Let’s Find the Right Mortgage Solution
Whether you’re buying your first home, moving to your next home, refinancing, accessing your home’s equity, or exploring specialized loan programs, Prime Choice Funding is here to help. Since 2007, we’ve provided personalized mortgage solutions with honest guidance and exceptional service.
Ready to get started? Click Here To Get Started or call (877) 787-7463 to speak with one of our licensed mortgage professionals. We’ll review your options, answer your questions, and help you find the mortgage solution that best fits your financial goals.
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Content on this blog is for general informational and educational purposes only and should not be considered financial, legal, tax, or mortgage advice. Loan programs, guidelines, credit-score requirements, rates, terms, down payment requirements, down payment assistance, seller contributions, gift funds, costs, and availability are subject to change and may vary based on individual qualifications, property, location, lender, investor, agency, and other factors. A stated minimum credit score does not guarantee eligibility or loan approval. Down payment assistance may involve subordinate financing, interest, monthly payments, deferred repayment, and/or repayment obligations. Forgivable assistance is subject to specific program terms, occupancy requirements, time periods, and repayment events. “100% financing” in this article refers to certain eligible financing structures that may provide up to 100% combined loan-to-value (CLTV) and does not mean that every borrower will qualify or that no funds will be required at closing. All loans are subject to application, verification, underwriting, applicable program requirements, property eligibility, and approval.