One of the biggest myths in homebuying is that you need to put 20% down to purchase a home. This outdated belief has held back many potential homeowners (especially first-time buyers) from even exploring their options. The truth? You can often purchase a home with as little as 3%, or even 0%, down. At Miranda Mortgage in Denver, we’re here to guide you through the wide range of down payment solutions that can make your dream of homeownership a reality, whether you’re a first-time buyer or a seasoned investor.
Before diving into creative down payment strategies, it’s important to understand the minimum requirements by loan type. Knowing your options helps narrow down which loan program might fit your situation best.
Conventional Loans require a minimum of 3% down. If you’re a first-time homebuyer, you may qualify for the Fannie Mae 97 loan, which allows that lower down payment with no income limits. There’s also the HomeReady and Home Possible programs under Fannie Mae and Freddie Mac, respectively, which also offer 3% down options. These two programs have income eligibility caps but offer added perks, like reduced mortgage insurance.
FHA Loans are a popular choice for buyers with less-than-perfect credit or a higher debt-to-income ratio. They require a minimum of 3.5% down. One benefit of FHA is their flat-rate mortgage insurance, which does not vary based on credit score.
VA Loans offer a 0% down payment for eligible veterans and active military members. These loans also have no monthly mortgage insurance and flexible credit guidelines, making them one of the most generous loan types available, if you qualify.
USDA Loans also offer 0% down financing, but only for properties located in eligible rural areas. These loans come with income limits, typically set at 115% of the area median income. They can be a great fit for buyers who are open to more suburban or rural living.
Jumbo Loans, used for higher-priced homes, generally require at least 10% down. That percentage can fluctuate depending on your credit profile and the lender’s specific requirements.
In addition to traditional low-down-payment loan options, there are lesser-known ways to come up with your down payment. Here are three that often get overlooked.
Receiving a financial gift from a relative or close friend is a perfectly acceptable way to fund your down payment. Whether it’s a small contribution or a sizable amount, every bit helps.
Lenders will typically require a signed gift letter stating that the funds are a gift and do not need to be repaid. If you’re using an FHA loan, the person giving the gift may also need to provide a bank statement to prove the money was theirs to give. This requirement doesn’t usually apply with conventional loans, making them more flexible in this area.
This is why early conversations are key, if you’re considering accepting gifted funds, it’s important to talk through these details with your mortgage advisor and your donor in advance to avoid any last-minute complications.
Tapping into your retirement savings may not be your first thought when buying a home, but it can be a strategic move if done wisely. Many 401(k) plans allow you to borrow against your balance, typically up to $50,000 or 50% of the account value.
A 401(k) loan is not considered taxable income, and you’ll repay yourself with interest over time. Unlike early withdrawals, which could trigger taxes and penalties, a loan offers a low-cost way to access your own funds for a short-term need like a down payment. Just be sure to speak with your plan administrator and a tax professional to fully understand the terms.
If you’re selling another property and just need temporary access to cash before that sale closes, a 401(k) loan can bridge the gap beautifully.
Down payment assistance (DPA) is a valuable resource for buyers who qualify. These programs vary by state, county, and even city, and can offer grants or low-interest loans to cover your down payment and closing costs.
In competitive markets, sellers may view DPA offers less favorably than traditional financing, but these programs are still worth exploring, especially for new construction or homes where the builder offers incentives with a preferred lender.
To find out what’s available in your area, the Colorado Housing and Finance Authority (CHFA) is a great place to start.
So, which path is right for you? The answer depends on several factors, including:
Here’s a quick comparison to help you see the landscape more clearly:
| Loan Type | Minimum Down | Credit Flexibility | Income Limits | Mortgage Insurance |
|---|---|---|---|---|
| FHA | 3.5% | High | None | Flat rate (0.85%) |
| VA | 0% | Very High | Yes (military) | None |
| USDA | 0% | Moderate | Yes (115% AMI) | Standard |
| Fannie Mae 97 | 3% | Moderate | No | Risk-based |
| HomeReady | 3% | Moderate | Yes | Reduced-cost |
| Jumbo | ~10% | Strict | No | Varies |
Understanding your full financial picture is essential to choosing the right mortgage. At Miranda Mortgage, we walk you through every option so you don’t leave money (or opportunity) on the table.
Your down payment shouldn’t be a barrier to buying a home, it should be part of a strategy. Whether you’re pulling from your 401(k), accepting a family gift, or exploring down payment assistance, we can help structure a plan that fits your goals.
At Miranda Mortgage in Denver, we believe in making the process approachable and stress-free. Our team takes the time to educate you so you feel confident every step of the way. We’re not just here to secure your home financing, we’re here to help you build a better future.
If you’re ready to explore your down payment options or want help figuring out where to start, give Naiely a call at 303.520.1786 or email her directly at Naiely@BarrettFinancial.com. Let’s start a conversation about your path to homeownership.
