Buying a home comes with many different expenses to consider.
What is your overall price range? What kind of monthly payment are you comfortable with? Are there closing costs to consider? How much money should you have in savings in case updates or repairs are needed? And when it comes time to think about buying your first home, some of the biggest questions are about the down payment.
A down payment is the money paid towards the home at the time of purchase. Most home mortgages require a down payment. It is typically a certain percentage of the entire loan. Many buyers will find 20% down has become the customary amount associated with the average mortgage, but with the average sale price rising at a staggering rate ($403,918 as of July, 2023–a nearly $100,000 increase over the last five years in Minnesota alone), this is becoming a massive barrier for many potential homebuyers.
Subsequently, the disparities in homeownership rates are high, with a nearly 30% gap between Black Americans and White Americans at 44.0% and 72.7%, respectively. Because down payments are a common business practice, and because most people buying their first home rely heavily on their real estate agent for information, some may not even know that there are mortgage options that don’t require a large down payment. There are also programs to help first-time buyers with down payments. The video below explains the process of saving for a down payment.
If you are looking for a mortgage with a low down payment or no down payment, here are some options to consider: a USDA loan, a VA loan, the down payment assistance program offered by Minnesota Housing, city and county down payment assistance programs, and Twin Cities Habitat’s TruePath Mortgage. Here’s a closer look at each of these.
A zero down payment mortgage is a loan to buy a home that does not require any money down at the time of purchase. This type of loan is not very common. Not many people are able to qualify for a zero down payment mortgage. Qualifications include things like a very high credit score, income requirements, and proven ability to repay the loan. Many banks do not even offer zero down payment loans.
The United States Department of Agriculture (USDA) Rural Development Guaranteed Housing Loan Program provides zero down payment loans for low- to moderate-income families in suburban and rural areas. A USDA loan allows buyers to finance 100% of their home purchase and access lower-than-average interest rates. Loans are received through a bank and backed by the USDA. The purpose of these loans is to help get people into safe, clean housing who otherwise would not be able to secure a loan. USDA loans include many eligibility requirements.
The U.S. Department of Veterans Affairs offers mortgages with low-interest rates that don’t require a down payment. However, only members of the military can qualify.
If you get a mortgage through Minnesota Housing's Start Up or Step Up programs, you can get some help with your down payment, up to $18,000!
There are various counties and cities within the Twin Cities metro area that provide some level of assistance with a down payment on a house in their area. So, if you’re looking to buy a house, check with the cities and counties where you’re searching to see what they offer. In the meantime, here are some examples to give you an idea of the types of city- or county-specific assistance that exists in the Twin Cities market:
Twin Cities Habitat for Humanity's mortgage company, TCHFH Lending, Inc., provides TruePath Mortgages to low- and moderate-income households across the seven-county metro area. The mortgage can be used on a Habitat-built home or a home found on the open market. This allows homebuyers to select the perfect house to meet their needs.
The TruePath Mortgage can be for a maximum of 96.5% of a home’s value or purchase price. Twin Cities Habitat for Humanity has funding or down payment assistance available to help fill that additional 3.5% gap, so it doesn’t always need to be provided by the borrower as a down payment. Having at least $6,300 in savings is required. That money is used toward up to $3,000 of closing costs, plus the first year of the homeowner insurance policy, and should be enough to still have reserves after you close on your home. Other benefits of the TruePath Mortgage include an affordable monthly housing payment set at no more than 30% of gross income and no mortgage insurance.
Even before you can put a down payment on a home, you need to make sure your finances are in order. The video below walks you through the important steps you need to take to be prepared to purchase a home.
Being able to put a small amount of money down towards the purchase of a home helps to bring down the monthly payment. This also means the overall amount of interest paid over the course of the loan will be lower.
Taking the step to become a homeowner is exciting. While looking at loan options can seem complicated, there are many organizations, like Twin Cities Habitat for Humanity, available to provide assistance. Thoughtful planning and preparation can help make the process a success.