Is making a low down payment realistic in 2022?

It’s a jungle out there

The home buying marketplace is fierce and has been for most of the past two years. A severe lack of inventory increased bidding wars and ballooned housing values at unprecedented rates.

This can feel daunting if you aren’t bringing an all-cash offer to the table. But despite the challenges, we spoke with five experts who said buying a house with either a low down payment or down payment assistance (DPA) is both doable and realistic.

You just have to enhance your profile in other ways — like reducing your time to close — especially as a first-time buyer.

Can a low down payment actually get you a house?

Yes, it’s tough to win over a cash buyer. But that’s tough regardless of your down payment amount.

“The down payment is just simply a part of the equation. It shouldn’t be a detractor or put [the borrower] in a lesser position with their offers.”

—Todd Pankratz, senior LO and branch manager, Wallick & Volk Mortgage

If you’re a low income borrower or only have enough money for a low down payment, fear not. The old and outdated adage that you need to put down 20% of a home’s purchase price is just that; old and outdated.

Todd Pankratz, senior loan originator and branch manager at Wallick & Volk Mortgage

“If the borrower’s review is done, they’re well qualified, fully pre-qualified or pre-approved, then the down payment is just simply a part of the equation. It shouldn’t be a detractor or put them in a lesser position with their offers.”

Nearly every low down payment home buyer has a loan type that’ll work best for them — including options you probably haven’t heard of. If your path to homeownership starts with a low down payment, speed might be the best way to improve your bid.

Tips to succeed with a low down payment

While it’s possible to buy with a low down payment, the experts we spoke with advised that you should still take the strongest position you can by improving your offer in other ways, if possible. This could help you get ahead of other bidders — potentially with bigger down payments — in today’s competitive market.

LaTisha Grant, executive managing broker of TAS Realty Group

“I tell my clients all the time to offer the best that you can. Then, we have to make everything else more attractive to try and get it accepted. Be as quick as possible with the closing time, reducing those days to close and the time for inspection.

Reduce your option period and do an upfront underwriting with the lender so it reduces the time frame for closing. In addition to that, going conventional would help over doing an FHA.

A lot of buyers are completely waiving the inspection but that’s not something I recommend. There’s also a lot of appraisal waiving, but again, if you’re a buyer with a low down payment, then you definitely don’t have the cash to bring to closing to compensate for an appraisal that comes in lower.

Maybe even pay for your own survey because, in most situations, it’s $450 and that’s something they can afford. And don’t ask the seller for contributions, of course.”

Dionne Henderson, product manager at Mid America Mortgage

“Stay resilient, have your documentation well organized and put your best foot forward. Make sure you’re not doing any frivolous spending and your funds remain stable. We don’t want to see any new cars in the driveway and keep your credit card debt low. You don’t want any last minute issues with other aspects to delay your home closing.”

Up your position with down payment assistance

Down payment assistance (DPA) programs are another means to beef up your bid to a seller without further draining your bank account. DPAs mostly come in four forms — grants, second mortgages, deferred loans, and forgivable loans — are government-run and vary by location.

“Even if you have money saved, there’s no downside to looking into DPA options because it might put you in a better position in the marketplace.“

-Todd Pankratz, senior LO and branch manager, Wallick & Volk Mortgage

While many DPA programs aim to help specific groups, they’re not exclusively for first-time or low-income buyers. However, you do still need to qualify for these programs and there are best practices to follow.

Todd Pankratz, senior loan originator and branch manager at Wallick & Volk Mortgage

“It’s called down payment assistance but sometimes it’s used to add to what you already have or sometimes it’s used for closing costs. Even if you have money saved, there’s no downside to looking into DPA options because it might put you in a better position in the marketplace.”

Sean Moss, EVP of product and operations at Down Payment Resource

“Most of these programs are not much different than qualifying for a mortgage. They have minimum FICO requirements that typically start at 620. You have to be income and credit qualified. And there are income or purchase price limits, which can be surprisingly high or flexible.

A lot of down payment assistance programs require that you complete a home buyer education class. It can be done up to a year — and sometimes more — in advance of actually signing a contract and purchasing a home. It’s a great way to one get a requirement done super early so that it doesn’t become a delay. It also helps potential buyers learn about the home buying process and what obligations and responsibilities homeownership entails.

Work with loan officers that know these programs. Not every lender participates in DPA and not every lender that participates offers every single program available in their market. Look at your state housing finance agencies website, they all publish a list of participating lenders and many publish a list of their top producers”

Get creative in your home search

With the housing supply constrained and competition so high, buyers need to think outside the box now more than ever.

In hunting for your next home, that means expanding your search either geographically or by property type.

LaTisha Grant, executive managing broker of TAS Realty Group

“We’ve been working on changing where we look with buyers and including entry-level properties like condos and townhomes. We also look into non-traditional listings, like those offered by the city or county, and we even work with Houston Habitat [for Humanity]. And that assists you in getting your offer accepted because they work on a first-come, first-serve basis.”

The bottom line

The current housing market is hard to navigate, but it isn’t expected to change anytime soon.

Buying a home, even without putting a lot down, is both realistic and doable — especially if you improve your bid according to the advice listed here. And remember, timing is everything.

Jon Meyer, The Mortgage Reports loan expert and licensed MLO

“I find through my experience that if the total purchase price is the same, the timeline is more important than the amount the buyer has for a down payment.”

If you’re ready to buy a house, reach out to a local lender who works with low down payments or DPAs. They can tell you what’s available and what works best with your set of circumstances.