With interest rates at historical lows and home prices being more affordable than they have been in decades, many people know that now is a great time to buy a home, but they may be worried about large down payment requirements.

When looking to finance a home, two of the most common questions asked include:

  • What loan options require a low (or no) down payment?
  • Is down payment assistance available?

Traditional loan options

While it is true that a 20 percent down payment is still required to avoid mortgage insurance for conventional loans, there certainly are mortgage options that require a low or no down payment. Almost all mortgage lenders offer at least these options:

  • VA mortgages requiring zero down.
  • USDA mortgages requiring zero down.
  • FHA mortgages requiring 3.5 percent down.
  • Conventional mortgages requiring 5 percent down.

Down payment assistance

In many parts of the country, down payment assistance programs are available. These programs usually work in conjunction with a local government in the form of a bond, government grant or community development program.

The U.S. Department of Housing and Urban Development maintains a database of state and local home buying assistance programs on its website.

Lease options and owner-carry

Particularly in states that were hit by the downturn in property values, the lease option has become a popular means to buy a house. The lease-option model can take many different forms and may or may not include the current owner agreeing to finance the home to the buyer.

In simple terms, the lease option is an agreement between the homeowner and the buyer where the buyer agrees to lease the property for a set period of time and at some point there is the option to get other means of financing.

In the event that the current owner of the home is willing to carry the buyer immediately, it is often referred to as an owner-carry, and the terms of the agreement can be extremely flexible regarding down payment, interest rate and term of the loan.

Essentially, there are no rules when it comes to an owner-carry or lease option: It is a negotiation between the homeowner (who is also acting as the landlord or lender or both) and the buyer (who may be a tenant for a period of time).

If you are not experienced in real estate contracts, it is always a good idea to work with an attorney or real estate agent who can help you understand what is customary in a lease option — and remember, pretty much anything goes in these agreements.

But one thing is certain: If you want to buy a home and are wondering what your options are for a low (or no) down payment, there are far more options out there than just getting an FHA loan. The easiest way to learn more about financing options? Start by asking a real estate agent. They sometimes tend to know far more about “creative financing” than loan officers do.


Justin McHood is America’s Mortgage Commentator and lives in the Phoenix, Arizona area. You can find Justin on Facebook, Twitter, and LinkedIn. He is happy to answer any mortgage-related questions that you may have.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

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