How to buy a house with “only” $12,000 down

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Buying a home is a complicated and expensive process, especially for buyers who cannot afford a “traditional” 20% down payment. You’re basically convincing a bank to lend you over half a million dollars in many markets; if they don’t believe they can trust you to pay back that much money (plus interest), it will cost you even more in the form of mortgage insurance and other costs.

All of this can leave potential low-to-moderate income buyers feeling hopeless and discouraged. Housing prices in the United States are not really helping either: in 2021, the median sale price of homes has exceeded $400,000 for the first time in history. A 20% down payment on a $400,000 mortgage equals $80,000, a truly ridiculous amount of money for all but a lucky few.

But the good news is you don’t have put down 20% down in order to get a good (or at least acceptable) mortgage. Some programs only require a 3–3.5% down payment; assuming a sale price of $400,000, that’s a much more realistic $12,000–$14,000. Even if you “only” have about $12,000 for a down payment (which is still a lot of change), you can buy a house. You can also buy one with no down payment. Here’s how.

Research your options

Mortgages are just very large loans. Unfortunately, that means there are about as many different mortgages as there are financial institutions offering them, creating a ton of legwork for potential buyers. To simplify things a bit, the federal government guarantees certain loans is aimed at first-time buyers. These loan programs only require a low (3–5%) deposit:

Other programs offer mortgages with no down payment, including:

  • USDA Loans: 0% deposit; annual contribution of 0.35%; limited to eligible rural areas; income restrictions apply
  • AV loans: 0% deposit for some lenders; no PMI required; 1.4% to 2.3% upfront financing fees for first-time buyers
  • NACA (Neighborhood Assistance Corporation of America) Loans: 0% deposit; Annual membership fee of $25 per household; no PMI required; the seller pays the closing costs; income and location restrictions apply

Some private lenders (banks, credit unions, online mortgage lenders like Quicken Loans or Rocket Mortgage) also offer conventional mortgages with down payments in the range of 5% to 10%, depending on your income, score of credit and the desired purchase price. But that’s just a small sample of what’s out there – be sure to check with local lenders too.

Meet with loan officers and/or mortgage brokers

Once you have an idea of ​​what you are looking for in a mortgage, it’s time to start collecting quotes. To do this, you will need to meet people who know all about the specific loans you are considering. For most people, that means contacting loan officers, mortgage brokers, or both.

Loan officers and mortgage brokers do the same thing – match buyers with mortgages – but they go about it in different ways. Loan officers work for a specific lender, so they are limited to mortgages offered by their employer. Mortgage brokers are generally independent and work with several lenders. Both charge the lender or buyer a certain amount of money for the work of preparing, applying for and processing a loan: the brokerage fee is usually around 1% to 2.75% of the amount of the loan (federal law caps it at 3%), while the “loan origination fee” for loan officers is a bit lower, around 0.5–1%. If the lender is by paying these fees, they will appear in your loan estimate form under “Opening Fees”. Always include these charges when comparing quotes; they could save you a lot of money.

A down payment is only one part of a mortgage: between interest rates, insurance, lender fees and closing costs, there are many other (very expensive) moving parts to take into account. But if a 20% down payment has been your biggest hurdle to homeownership, at least now you know you have other options.

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