Mortgage interest rates increased this week, according to the Mortgage Bankers Association. Mortgage application activity decreased in turn, showing that today’s buyers remain sensitive to minor fluctuations in rates.
Looking forward, mortgage interest rates are still forecasted to decline somewhat throughout 2024, as the Federal Reserve projects rate cuts will begin sometime later this year. Here are the current mortgage rates, as of June 5:
- 30-year fixed: 7.07% with 0.65 points (previous week: 7.05% with 0.63 points).
- 15-year fixed: 6.75% with 0.63 points (previous week: 6.66% with 0.69 points).
- 5/1 ARM: 6.37% with 0.63 points (previous week: 6.64% with 0.77 points).
- 3-year jumbo loans: 7.21% with 0.41 points (previous week: 7.22% with 0.43 points).
- 30-year FHA loans: 6.87% with 0.96 points (previous week: 6.85% with 0.95 points).
If you’re having a tough time saving for a down payment and 20% down seems out of reach, you’re not alone – and there’s good news. You could qualify for several low-down-payment mortgage programs, depending on factors such as your credit history, household income and neighborhood.
FHA Loan
The FHA offers a low-down-payment mortgage that allows you to put as little as 3.5% down.
Your FICO score must be at least 580 to make a 3.5% down payment. For scores between 500 and 579, you’ll need a 10% down payment. Your debt-to-income ratio should be no more than 50%. However, keep in mind that requirements for FHA loans can vary depending on your lender.
USDA Loan
The USDA offers no-down-payment direct and guaranteed loans through its Single Family Housing Programs in certain rural areas. Applicants must show an ability to manage debt and pay bills. No down payment is required, but you’ll pay an upfront guarantee fee and an annual fee. You’ll usually need a credit score of at least 640 to get a USDA-guaranteed mortgage, according to the credit bureau Experian.
VA Loan
The VA offers a zero-down-payment mortgage for qualifying veterans and spouses. Borrowers may need to pay a funding fee, which can be financed or paid in full at closing, says Bill Banfield, chief risk officer at Rocket Mortgage.
Applicants must furnish a Certificate of Eligibility, or COE.
HomeReady by Fannie Mae
Fannie Mae offers a 3% down payment loan for low-income homebuyers. Your credit score must be at least 620 to get a HomeReady loan, and if it is 680 or higher, you could get better pricing.
Conventional 97
This Fannie Mae loan requires a 3% down payment but sets no income limits. Buyers need a credit score of 620 or higher for this conventional loan.
Freddie Mac Home Possible Mortgage
This loan has a down payment as low as 3%, and borrowers need less mortgage insurance coverage once they reach 10% equity. The Freddie Mac Home Possible loan is available for those with credit scores of 620 or higher.
Low-Down-Payment Bank Loans
Lenders may offer their own low-down-payment mortgages and down payment assistance programs that help homebuyers get into a loan without a 20% down payment.
Some employers offer down payment assistance, says Ann Thompson, chief financial officer at Digital NEST, an IT services and consulting company. State, county and city programs may also be available to help you afford a mortgage down payment.
Is a low-down-payment mortgage right for you? You might decide to apply for a loan with a down payment of less than 20% for many reasons.
Pros
- You will bring less cash to closing.
- You can access homeownership more quickly.
- You can keep more savings for emergencies.
- You can get into a home faster instead of waiting to save for a large down payment.
- You have the ability to establish wealth by owning a home and paying down that debt.
Cons
- You will likely pay private mortgage insurance.
- You will have little to no equity in the home.
- You will likely pay higher interest rates.
U.S. News selects the Best Loan Companies by evaluating affordability, borrower eligibility criteria and customer service. Those with the highest overall scores are considered the best lenders.
To calculate each score, we use data about the lender and its loan offerings, giving greater weight to factors that matter most to borrowers. For mortgage lenders, we take into account each company’s customer service ratings, interest rates, loan product availability, minimum down payment, minimum FICO score and online features.
The weight each scoring factor receives is based on a nationwide survey on what borrowers look for in a lender.
To receive a rating, lenders must offer qualifying loans nationwide and have a good reputation within the industry. Read more about our methodology.
To recap, here are the picks:
Best Low-Down-Payment Mortgages of June 2024
A low-down-payment mortgage is a home loan that requires you to pay less than 20% of your home’s purchase price upfront. “Many borrowers with limited resources find these mortgages attractive because it allows them to save their remaining assets for incidentals and other unexpected expenses,” says Julienne Joseph, senior advisor for homeownership at the Office of the HUD Secretary.
You will find the lowest down payment with a Federal Housing Administration (FHA) Mortgage, which has a minimum down payment of only 3.5%.
Some low-down-payment mortgage programs have income limits. For instance, your qualifying income can be at most 80% of the area median income to get a Fannie Mae HomeReady Mortgage or a Freddie Mac Home Possible Mortgage.
To qualify for any mortgage, including one with a low down payment, you’ll need a solid credit report. Lenders also consider factors including your income, past two years of employment and debt-to-income ratio when approving you for a mortgage.