3% Low Down Payment Mortgage Options

First things first, you might be surprised to find out who qualifies as a first-time homebuyer. Even more surprising, 3% down-payment mortgage options are available for homebuyers who aren’t first-time homebuyers. There are a few limitations, so let’s see which options might be a good fit.

-> Read this short article to find out if you qualify as a first-time homebuyer.

Low Down Payment Mortgage Options for First-Time Homebuyers and Repeat Homebuyers

There are also low mortgage down payment options that require as a little as zero down on your next home. Find out more about USDA Loans and VA Loans and how you could qualify for a no-down-payment mortgage.

If you’re looking for low-down-payment mortgage options, keep reading.

How to Qualify for 3% Down on Your Next Mortgage in 2021

You’ve probably heard that most new home loans require a down payment between 5%-20% to get a good mortgage. The higher the down payment, the lower the mortgage rate. But this isn’t always the case.

Low-down payment mortgage options with 3% down are designed to help more people become homeowners. Especially potential homebuyers who have a good credit rating, lower-income, moderate-income, and buyers looking in certain neighborhoods where property values might be lower than average for the area.

A quick list of qualifiers for a 3% down payment option on your next mortgage:

  • A minimum credit score of at least 620
  • Stable employment and regular income
  • No recent foreclosures or bankruptcies
  • Primary residence (live at your new home full-time)
  • Gift funds can be used for the down payment and closing costs
  • The mortgage must meet conforming loan limits
  • 2021 Conforming limits: $548k in most areas, $822k in high-cost areas

Low Down Payment Mortgage Option #1: HomeReady Mortgage Loan by Fannie Mae

The Fannie Mae HomeReady Mortgage is a mortgage program designed to meet the specific needs of lower-income homebuyers. The income limit set by Fannie Mae is 80% of an area’s local median income. So if you’re shopping for a home in an area where your income falls below 80% of that area’s median income, this might be a good mortgage option. The Fannie Mae Home Ready Mortgage has some great benefits to consider for your home loan mortgage.

One of the biggest benefits of the HomeReady Mortgage is the ability to count multiple sources of income toward your loan application. For example, you can include income from renters or relatives living with you when applying for a Fannie Mae Home Ready home loan.

A few benefits and highlights:

  • Gifted funds can be used for up to 100% of your down payment
  • Gifted funds can be used for your closing costs
  • Down Payment Assistance (DPA) can be used for closing costs
  • You can count rental income on your loan application
  • You can count income from relatives or other people living with you (if they’ve lived with you for at least one year).

The Fannie Mae HomeReady home loan can also be used to buy a multi-unit property (up to 4 units) as long as at least one of the units is your primary residence.

Low Down Payment Mortgage Option #2: HomePossible Mortgage by Freddie Mac

The Freddie Mac HomePossible Mortgage is similar to the Fannie Mae HomeReady mortgage program and is designed to help lower-income homebuyers qualify for a home loan. The income limit set by Freddie Mac is 80% of the area’s local median income.

One key difference with the Freddie Mac HomePossible loan is that you’re only allowed to count your own income and rental income on your home loan application. The HomePossible mortgage does not include income from other relatives or occupants as qualifying income (unless they are renters).

A few benefits and highlights:

  • Gifted funds can be used for up to 100% of your down payment
  • Gifted funds can be used for your closing costs
  • Down Payment Assistance (DPA) can be used for closing costs
  • You can count rental income on your loan application

The Freddie Mac Home Possible home loan can also be used to buy a multi-unit property (up to 4 units) as long as at least one of the units is your primary residence.

Low Down Payment Mortgage Option #3: Conventional 97 Mortgage Option for Higher-Income Buyers

The conventional 97 mortgage program is a great option for buyers who have higher income and higher credit ratings but want to qualify for a 3% down payment.

It’s more flexible in some ways since there are no income restrictions, but it has tighter restrictions in other areas. For example, the Conventional 97 mortgage is not available for investment properties or multi-unit properties.

A few benefits and highlights:

  • Keep growing your savings instead of making a big down payment
  • Invest elsewhere to build wealth instead of making a big down payment
  • Ability to cancel PMI (private mortgage insurance) faster
  • Ability to purchase a more expensive home
  • No limitations on areas or neighborhoods
  • No limitations or caps on income

Taking Action

If you’re looking for a 3% down payment mortgage option, there are a wide variety of loan options. Working with an experienced mortgage broker who understands your situation will make a big difference! If you want to save money on your next mortgage and start building equity in real estate, 2021 is a great time to start. We can help.