Not ready for a sizable down payment?

Deciding on how much money to use as a down payment can be confusing. New Story Lending is here to help. The route for each buyer or investor depends on their situation and personal preferences.

Low Down Payment Options

FHA Loan

You can purchase a single-family home or condominium with as little as 3.5% down using an FHA loan, but there’s a trade-off for lower down payments on conforming loans: mortgage insurance (often called PMI, private mortgage insurance).

USDA Loan

Is your dream home surrounded by pasture and farmland? Buyers in rural and eligible suburban markets may be able to use a USDA loan, which requires no money down.

VA Loan

Military veterans who qualify for a VA loan can purchase a home with no money down. VA loans can provide up to 100% financing for qualified military personnel and veterans.

There are also non-conforming loan programs available with 80/20 structures, which let borrowers take a second mortgage to cover the 20% down payment.

Have less than perfect income and credit? Contact us — we may have a program that fits your needs.

How much should I use for a down payment?

There are costs and benefits to any option, including those with low down payments. You should carefully consider your options and discuss your plan with a professional.

Talk to one of our loan specialists today to come up with a customized solution that best fits your needs and budget.

Cost of a Lower Down Payment

Low or no down payment programs have two primary costs that result in a higher monthly payment:

• Higher interest rates
• Higher mortgage insurance premiums

Mortgage insurance can be removed once sufficient equity is produced. For example, if the property shows at least 20% equity in a few years, the mortgage insurance can be refinanced away.

Benefits of Lower Down Payments

Though the disadvantages of low down payments seem serious, there are also advantages. Take time to weigh the two and assess which is the best for you.

The chief benefits of lower down payment include the following:

• Less money out of pocket at the time of purchase.
• Higher rate of return. Your property’s appreciation will be the same whether you put 3%, 5%, or 20% down. In fact, your rate of return actually decreases as you make a larger down payment, as discussed below.
• Opportunity cost. In some cases, the smart investor can make more money from available cash by placing it in other investments.

During the first few years of the mortgage loan, the bulk of your monthly payments go towards paying interest – which is usually tax-deductible. So you get quite a bit of your monthly payments back at the end of the year in the form of tax deductions.

Personal Consideration

Carefully consider the amount of money that you want to put down. Your lender will qualify you for a certain level based on your income; however, that amount may be different from the level that you feel comfortable paying each month. You must decide what you can afford.

Talk to your loan officer at New Story Lending about the best situation for you.

Everything You Need, In One Place

Explore our calculators, loan programs, and resources, then reach out whenever you’re ready to talk through your options.

• Mortgage Calculator — Run different scenarios: purchase, refinance, and more. Open the calculator
• Mortgage Insights — Tips, trends, and resources from our team. Read the blog
• Loan Programs — See the full range of loan programs we offer and who each fits. View loan options
• Start Your Application — Begin your mortgage application online, at your own pace. Apply online

Compare Loan Options

Not sure this is the right fit? Compare it with a few other loan programs that might work better for your situation:

• FHA loans for flexible credit requirements
• USDA loans for eligible rural properties with $0 down
• VA loans if you’ve served in the military
• Or browse all of our loan options

Frequently Asked Questions

What are low down payment mortgage options? Low down payment mortgages are loan programs that let eligible buyers purchase a home with a smaller upfront payment than the traditional 20%, in some cases as little as 0% to 3.5% down depending on the program. They make homeownership more accessible, especially for first-time buyers and buyers with limited savings.

Which loan types offer low down payment options? FHA loans allow as little as 3.5% down, USDA loans can offer 0% down for eligible rural and suburban properties, and VA loans can offer 0% down for qualifying veterans and military members.

Do low down payment loans require mortgage insurance? In most cases, yes, if you put down less than 20%. FHA loans carry a mortgage insurance premium (MIP), while conventional loans use private mortgage insurance (PMI). VA loans don’t require mortgage insurance at all. It isn’t permanent, either — it can typically be removed once you’ve built enough equity, whether through appreciation or by refinancing.

Can I use gift funds or down payment assistance programs?  Many low down payment programs allow part or all of the down payment to come from gift funds or local down payment assistance programs, as long as documentation and program guidelines are met.

Are low down payment loans only for first-time buyers? Not necessarily. While many of these programs are designed with first-time buyers in mind, repeat buyers who meet the income, credit, and occupancy requirements may also qualify.

What if my credit or income isn’t perfect? A low down payment doesn’t have to mean strict qualifying. We work with buyers across a range of credit and income situations, and can walk you through which program, if any, is the right fit before you commit to anything.

Have more questions? Check out our FAQ page for answers to what we hear most, or contact us directly — our loan officers are happy to help.