5 Mortgage Lenders To Consider If You’re Making A Small Down Payment

5 Mortgage Lenders To Consider If You’re Making A Small Down Payment

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The homebuying process can seem confusing and overwhelming, especially since there are so many moving parts to consider.

Making a down payment is just one part of the process. While it has long been a notion that you needed to put at least 20% down in order to buy a home, findings from a recent report by the National Association of Realtors indicate that the average down payment on a home or condo in 2021 was actually 12% — for homebuyers under the age of 30, the average down payment was just 6%.

It’s important to note that if you make a down payment of less than 20%, you’ll typically be charged Private Mortgage Insurance, or PMI, until you build 20% equity in the home.

That said, making a lower down payment can present some advantages. For one, doing so allows you to reserve more of your savings for closing costs, lender fees, renovations that may need to be done in the home and other moving expenses.

Select rounded up five mortgage lenders that do not require a large down payment, evaluating lenders based on the types of loans offered, customer support and minimum down payment amount, among other factors (see our methodology below.)

As always, do your homework ahead of time so you can be sure you’re choosing the lender that best suits your needs, whether you’re a first-time homebuyer or purchasing an investment property.

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Select’s picks for the best low down payment mortgage

Mortgage FAQs

Best for flexible down payment options

Chase Bank

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans

    Conventional loans, FHA loans, VA loans, DreaMaker℠ loans and Jumbo loans

  • Terms

  • Credit needed

  • Minimum down payment

    3% if moving forward with a DreaMaker℠ loan

Pros

  • Chase DreaMaker℠ loan allows for a slightly smaller down payment at 3%
  • Discounts for existing customers
  • Online support available
  • A number of resources available for first-time homebuyers including mortgage calculators, affordability calculator, education courses and Home Advisors

Cons

  • Doesn’t offer USDA loans or HELOCs
  • Existing customers discounts apply to those who have large balances in their Chase deposit and investment accounts

Who’s this for? Chase Bank offers down payment options as low as 3% if you apply for the DreaMaker home loan — for comparison, an FHA loan requires borrowers to make a 3.5% down payment.

While the DreaMaker loan is designed especially for those who can only afford to make a small down payment, it also comes with stricter income requirements compared to some of the other available loans. According to Chase, the annual income used to qualify customers must not exceed 80% of the Area Median Income, or AMI, for instance.

In addition to the DreaMaker loan, Chase also offers a conventional loan, FHA loan, VA loan and jumbo loan — USDA loans and home equity lines of credit, or HELOCs, are not offered by this lender. The VA loan requires a down payment minimum of 0%, which tends to be the standard rate for these types of loans. Much like other lenders, Chase has a minimum credit score requirement of 620 for its mortgage options.

Chase offers mortgage terms that range from 10 years to 30 years, as well as fixed rate and adjustable-rate mortgages, or ARM. Discounts are also offered for existing customers, although the requirements are rather high: To receive $500 off your mortgage processing fee, you’ll need to have $150,000 to $499,999 between Chase deposit accounts and Chase investment accounts, while having $500,000 or more in these accounts can result in up to $1,150 being taken off the processing fee.

Best for a VA loan

Navy Federal Credit Union

  • Annual Percentage Rate (APR)

    Apply online for personalized rates

  • Types of loans

    Conventional loans, VA loans, Military Choice loans, Homebuyers Choice loans, adjustable-rate mortgage

  • Terms

  • Credit needed

    Not disclosed but lender is flexible

  • Minimum down payment

    0%; 5% for conventional loan option

Pros

  • 0% downpayment for most loan options
  • flexible repayment terms ranging from 10 years to 30 years
  • Offers refinancing, second-home financing and loans for investment properties
  • No PMI required
  • Fast pre-approval
  • RealtyPlus program allows applicants to receive up to $9,000 cash back

Cons

  • Must be a Navy Federal Credit Union member to apply

Who’s this for? Navy Federal Credit Union provides the most benefits to current or retired members of the Armed Forces who have signed up for a Navy Federal Credit Union membership (immediate family members are also eligible).

This lender offers VA loans with the option to pay 0% down and contribute up to 4% of the home’s value toward closing costs. Another option, the Military Choice mortgage, has similar guidelines to the VA loan, such as no PMI and a 0% minimum down payment, but allows sellers to contribute up to 6% of the home’s value toward closing costs.

Homebuyers can also use the RealtyPlus program to buy a home and receive up to $9,000 in cash back. Private mortgage insurance, or PMI, is also not a requirement for a low down payment on a mortgage through this particular lender.

While this lender doesn’t disclose its required minimum credit score, it does work with members to analyze their circumstances and find the right mortgage fit for them, making Navy Federal Credit Union a potentially more flexible lender if your credit score is on the lower side.

Best for no lender fees

Ally Bank

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans

    Conventional loans, HomeReady loan and Jumbo loans

  • Terms

  • Credit needed

  • Minimum down payment

    3% if moving forward with a HomeReady loan

Pros

  • Ally HomeReady loan allows for a slightly smaller downpayment at 3%
  • Pre-approval in just three minutes
  • Application submission in as little as 15 minutes
  • Online support available
  • Existing Ally customers can receive a discount that gets applied to closing costs
  • Doesn’t charge lender fees

Cons

  • Doesn’t offer FHA loans, USDA loans, VA loans or HELOCs
  • Mortgage loans are not available in Hawaii, Nevada, New Hampshire, or New York

Who’s this for? Ally Bank offers a HomeReady mortgage program that is geared toward low- to mid-income homebuyers regardless of whether it’s their first time or if they’re a repeat buyer, allowing you to put down as little as 3% for a down payment. Applicants must have a debt-to-income ratio of no more than 50%, their income must be equal to or less than 80% of the area’s median income and at least one borrower must take a homeowner education course.

It’s common for lenders to charge several fees during the mortgage application process, including an application fee, an origination fee, a processing fee and an underwriting fee, which can end up costing a significant amount during the homebuying process. While Ally doesn’t charge any of those fees, you may still have to deal with appraisal fees and recording fees, or pay for title searches and insurance.

It’s possible to get pre-approved for a loan in as little as three minutes online and submit your application in just 15 minutes, as long as you have all the necessary documents handy.

While Ally also offers a jumbo loan option, note that FHA loans, VA and USDA loans are not available through this lender. Customers can also choose between fixed rate and adjustable rate mortgages, and 15-year, 20-year and 30-year loan terms.

One important drawback, though, is that Ally mortgage loans are not available in every state — residents of Hawaii, Nevada, New Hampshire and New York are not able to apply.

Best for specialized loan options

PNC Bank

  • Annual Percentage Rate (APR)

    Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

  • Types of loans

    Conventional loans, FHA loans, VA loans, USDA loans, jumbo loans, HELOCs, Community Loan and Medical Professional Loan

  • Terms

  • Credit needed

  • Minimum down payment

    0% if moving forward with a USDA loan

Pros

  • Offers a wide variety of loans to suit an array of customer needs
  • Available in all 50 states
  • Online and in-person service available
  • Pre-approval in as little as 30 minutes

Cons

  • Doesn’t offer home renovation loans

Who’s this for? USDA loans allow homebuyers to make a 0% down payment to purchase their home. It’s sometimes tough to find lenders that offer these types of loans in addition to other standard mortgage options, but PNC Bank does include USDA loans in its lineup.

To apply for a USDA loan with PNC Bank, you must be purchasing a home in a qualifying rural area. If you’re not interested in a USDA loan, this particular lender also offers conventional loans, FHA loans, VA loans, jumbo loans and a PNC Bank Community Loan, a special program that allows homebuyers to put down as little as 3% (without paying private mortgage insurance) and choose between fixed-rate and adjustable-rate mortgage terms.

This lender also offers a special loan option geared toward medical professionals who are looking to buy a primary residence only. With this loan, medical professionals can apply for as much as $1 million and won’t have to pay private mortgage insurance regardless of their down payment amount. They can also choose between fixed-rate and adjustable-rate terms.

It’s possible to get online pre-approval in as little as 30 minutes as long as you have all the documentation available on hand.

Best for no PMI

CitiMortgage®

  • Annual Percentage Rate (APR)

    Apply online for personalized rates

  • Types of loans

    Conventional loans, FHA loans, VA loans and Jumbo loans

  • Terms

  • Credit needed

  • Minimum down payment

Pros

  • Citi’s HomeRun Mortgage program allows for a downpayment as low as 3%
  • Citi’s Lender Assistance program gives eligible homebuyers a credit of up to $5,000 to use toward closing costs
  • Ability to choose between fixed-rate and adjustable-rate mortgages
  • New and existing Citi bank customers can qualify for closing cost discounts based on their account balance
  • HomeRun mortgage program allows for a downpayment of less than 20% without PMI
  • Provides homeownership education and counseling

Cons

  • No options for a 0% downpayment
  • Existing customers need high account balances to receive some of the highest interest rate discounts

Who’s this for? Private Mortgage Insurance, or PMI, is typically a required monthly charge if you make a down payment of less than 20% for your home. While it can eventually be waived once you’ve made enough payments to build up 20% equity in your home, PMI can still easily eat into your monthly budget before that point.

Those who apply for a mortgage through Citi‘s HomeRun program can make down payments as low as 3% without having to pay monthly PMI. HomeRun mortgages also allow you to lock in a fixed rate on your loan so you won’t have to worry about potentially being charged even more interest down the line. This mortgage option is also ideal for those who need to borrow up to $647,200 — or up to $970,800 if you reside in Hawaii or Alaska. If you’re looking for a jumbo loan, here are four mortgage lenders you should consider.

Aside from the HomeRun program, Citi also offers discounts for anyone interested in its other mortgage loans. Citi is currently offering a $500 credit toward your closing costs when you apply for a Citi mortgage.

Mortgage FAQs

1. What is pre-approval and how does it work?

Pre-approval is a statement or letter from a lender that details how much money you can borrow to purchase a home and what your interest rate might be. To get pre-approved, you may have to provide bank statements, pay stubs, tax forms and employment verification, among other documents. Once you’re pre-approved, you’ll receive a mortgage pre-approval letter, which you can use to begin viewing homes and making offers. It’s best to get pre-approved at the start of your home-buying journey before you start looking at homes.

2. How do mortgages work?

A mortgage is a type of loan you can use to purchase a home. It’s also an agreement between you and the lender that essentially says you can purchase a home without paying for it in-full upfront — you’ll just put some of the money as a down payment upfront (usually between 3% and 20% of the home price) and pay smaller, fixed equal monthly payments for a certain number of years plus interest.

For example, you probably don’t want to pay $400,000 for a home upfront, however, maybe you can afford to pay $30,000 upfront. A mortgage would allow you to make that $30,000 payment — a lender would provide you with a loan for the remaining amount of $370,000 and you’d agree to repay it plus interest to the lender over the course of 15 or 30 years.

Keep in mind that if you choose to put down less than 20%, you’ll be subject to private mortgage insurance, or PMI, payments in addition to your monthly mortgage payments. However, you can usually have the PMI waived after you’ve made enough payments to build 20% equity in your home.

3. What is a conventional loan?

Conventional loans are funded by private lenders and sold to government enterprises such as Fannie Mae and Freddie Mac. It’s the most common type of loan and some lenders may require a down payment as low as 3% or 5%.

4. What is an FHA loan?

Federal Housing Administration loans, or FHA loans, typically allow you to purchase a home with looser requirements. For example, this type of loan might let you get approved with a lower credit score and applicants may be able to get away with having a higher debt-to-income ratio. You typically only need to make a 3.5% down payment with an FHA loan.

5. What is a USDA loan?

USDA loans are offered through the United States Department of Agriculture and are aimed at individuals who want to purchase a home in a rural area. A USDA loan requires a minimum down payment of 0% — in other words, you can use it to buy a rural home without making a down payment.

6. What is a VA loan?

VA mortgage loans are provided through the U.S. Department of Veterans Affairs and are meant for service members, veterans and their spouses. They require a 0% down payment and no additional private mortgage insurance.

7. What is a jumbo loan?

Jumbo loans are meant for homebuyers who need to borrow more than $647,200 to purchase a home. They are not sponsored by Fannie Mae or Freddie Mac and typically have stricter credit score and debt-to-income ratio requirements.

8. How is my mortgage rate decided?

Mortgage rates change almost daily and can depend on market forces such as inflation and the overall economy. While the Federal Reserve doesn’t set mortgage rates, they tend to move in reaction to actions taken by the Federal Reserve on its interest rates.

While market forces may influence the general range of mortgage rates, your specific mortgage rate will depend on your location, credit report and credit score. The higher your credit score, the more likely you are to be qualified for a lower mortgage interest rate.

9. What is the difference between a 15-year and a 30-year term?

A 15-year mortgage gives homeowners 15 years to pay off their mortgage in fixed, equal amounts plus interest. By contrast, a 30-year mortgage gives homeowners 30 years to pay off their mortgage. With a 30-year mortgage, your monthly payments will be lower since you’ll have a longer period of time to pay off the loan. That said, you’ll wind up paying more in interest over the life of the loan since interest is charged monthly. A 15-year mortgage lets you save on interest but you will likely have a higher monthly payment.

Our methodology

To determine which mortgage lenders are the best, Select analyzed dozens of U.S. mortgages offered by both online and brick-and-mortar banks, including large credit unions, that come with fixed-rate APRs and flexible loan amounts and terms to suit an array of financing needs.

When narrowing down and ranking the best mortgages, we focused on the following features:

  • Fixed-rate APR: Variable rates can go up and down over the lifetime of your loan. With a fixed rate APR, you lock in an interest rate for the duration of the loan’s term, which means your monthly payment won’t vary, making your budget easier to plan.
  • Types of loans offered: The most common kinds of mortgage loans include conventional loans, FHA loans and VA loans. In addition to these loans, lenders may also offer USDA loans and jumbo loans. Having more options available means the lender is able to cater to a wider range of applicant needs. We have also considered loans that would suit the needs of borrowers who plan to purchase their second home or a rental property. 
  • Closing timeline: The lenders on our list are able to offer closing timelines that vary from as promptly as two weeks after the home purchase agreement has been signed to as many as 45 days after the agreement has been signed. Specific closing timelines have been noted for each lender.
  • Fees: Common fees associated with mortgage applications include origination fees, application fees, underwriting fees, processing fees and administrative fees. We evaluate these fees in addition to other features when determining the overall offer from each lender. Though some lenders on this list do not charge these fees, we have noted any instances where a lender does. 
  • Flexible minimum and maximum loan amounts/terms: Each mortgage lender provides a variety of financing options that you can customize based on your monthly budget and how long you need to pay back your loan.
  • No early payoff penalties: The mortgage lenders on our list do not charge borrowers for paying off the loan early. 
  • Streamlined application process: We considered whether lenders offered a convenient, fast online application process and/or an in-person procedure at local branches. 
  • Customer support: Every mortgage lender on our list provides customer service via telephone, email or secure online messaging. We also opted for lenders with an online resource hub or advice center to help you educate yourself about the personal loan process and your finances.
  • Minimum down payment: Although minimum down payment amounts depend on the type of loan a borrower applies for, we noted lenders that offer additional specialty loans that come with a lower minimum down payment amount. 

After reviewing the above features, we sorted our recommendations by best for overall financing needs, quick closing timeline, lower interest rates and flexible terms.

Note that the rates and fee structures advertised for mortgages are subject to fluctuate in accordance with the Federal Reserve rate. However, once you accept your mortgage agreement, a fixed-rate APR will guarantee your interest rate and monthly payment will remain consistent throughout the entire term of the loan, unless you choose to refinance your mortgage at a later date for a potentially lower APR. Your APR, monthly payment and loan amount depend on your credit history, creditworthiness, debt-to-income ratio and the desired loan term. To take out a mortgage, lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.


https://www.cnbc.com/select/mortgage-lenders-for-a-small-down-payment/

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