A down payment can be intimidating. In fact, the Urban Institute finds that two-thirds of renters say saving a down payment is a barrier to buying a home.
But there are programs specifically designed to help first-time buyers purchase a home without bringing a large check to the table. In fact, sometimes people can close with very little out of pocket, Ashley Harris, Director of Homebuyer Education at Neighbors Bank, tells Business Insider.
"People aren't familiar with the options that exist," Harris says. "They know they want to buy a house, but they just don't know how they're going to get there."
Mortgages with low or no down payment can help people get into homes sooner. They also allow buyers to keep cash in their savings — which is helpful to deal with the unexpected costs that arise with home ownership, Harris says. Here are the mortgage programs that all buyers should know about.
Mortgages from the VA and USDA with no money down
The first question Harris asks potential homebuyers is whether they or their spouse are veterans. If so, they may qualify for a zero-down VA mortgage through the US Department of Veterans Affairs.
"If anyone has military experience or happens to be a surviving spouse , we're going to check eligibility here first," Harris says.
For buyers who aren't veterans, another zero-money-down mortgage option is a USDA loan. Despite the name US Department of Agriculture, USDA loans aren't just for farmers or rural properties — in fact, 97% of the US land mass is in areas that qualify for USDA loans.
"That's huge, but not everyone knows about the product," Harris says. "It's not something that regularly gets talked about."
USDA loans are meant for low- and moderate-income buyers, and household income must be at or below 115% of your area's median income to qualify. A lender can help you explore whether you're able to get a USDA loan.
"If you qualify for that," she says, "it's a path worth exploring."
Low-down-payment mortgages through the FHA
Many buyers turn to low-down-payment FHA loans backed by the Federal Housing Administration, which allow buyers to put as little as 3.5% down.
FHA loans also offer some flexibility on debt-to-income ratio, which may allow buyers to get approved even if they have other debts like student loans or car payments, Harris notes. This is also helpful given the large monthly payments current housing prices demand.
In 2024, a congressional report found that FHA loans served nearly half a million first-time homebuyers. This type of loan is used more by Black and Hispanic borrowers than any other loan product.
Even if you have a large amount saved, it's worth considering a low-down-payment mortgage through the FHA.
"Having that money stay in your bank account might make more financial sense," Harris says. "You should have reserves."
Down payment assistance programs can reimburse costs
In addition to choosing a mortgage with a low down payment, buyers should consider using down payment assistance programs.
"You can buy a house and potentially get assistance for all of the down payment or closing costs.," Harris says.
There are more than 2,700 down payment assistance programs available nationally, Harris says, and they come in a variety of forms. Some are secondary loans, while others are grants that don't need to be repaid. They're provided by state, county, and local governments, as well as nonprofits and other organizations.
Buyers always need some money on hand — generally around 1% of the cost of the property to offer as earnest money when you go under contract, Harris says. However, down payment assistance programs can allow you to get into a home with very little money out of pocket.
First-time homebuyers should talk with a lender as soon as they begin planning to buy, even if that's a year or two before they start shopping.
"If they have the goal of buying a house, the sooner they talk to the lender, the better," Harris says. "A lender can talk you through different options and make a game plan for homeownership to become a reality for you."
Too many potential homebuyers find themselves dissuaded by internet searches or older relatives who may not understand the ways that people can qualify for a mortgage without a large down payment, she says. That can be costly.
"A good lender will coach you through where you are today, where you need to be, and what sort of payments fit with your lifestyle," Harris says. "Without talking to an expert, you could be sitting on the sidelines for way longer than you need to be."
Created by the Commerce team at Business Insider with Neighbors Bank.