Get Your Dream Home: Move Into a New House

Achieving the dream of owning a home is closer than many people realize — and it can be even more affordable for those who plan ahead, save money, and make smart financial choices.

The belief that you need 20% down to buy a house keeps more people renting than any credit score ever has. It is not a rule. It is not in any statute. It is the threshold at which a conventional lender stops charging you mortgage insurance — and there are four government-backed loan programs where the required down payment is 3.5%, or zero.

What those programs actually require, and what they cost you for the privilege, is the part nobody explains.

The four programs, side by side

	FHA	VA	USDA	Conventional 97
Down payment	3.5%	0%	0%	3%
Who it is for	Anyone	Veterans, service members, some surviving spouses	Moderate income, eligible areas	Income at or below 80% of area median
Credit score, typically	580 (500 with 10% down)	No federal minimum; lenders set one	640 is the common cutoff	620
Mortgage insurance	Yes, usually for the life of the loan	None, ever	Yes, but cheaper	Yes — and it cancels
Upfront fee	1.75% of the loan	2.15% funding fee, often waived	1% guarantee fee	None

That last row is the one to read twice. It is the difference between a cost that ends and a cost that does not.

FHA: the one most people qualify for

Insured by the Federal Housing Administration, which is why lenders will accept a borrower they would otherwise turn away.

• 3.5% down with a credit score of 580 or above.
• 10% down with a score between 500 and 579 — a tier most people do not know exists.
• The whole down payment can be a gift from family, or come from a down payment assistance program. FHA does not require you to have saved it yourself.

The 2026 limits are $541,287 in low-cost counties and $1,249,125 in the most expensive ones, with most counties somewhere between. Alaska, Hawaii, Guam and the U.S. Virgin Islands run on a higher schedule. Your county's figure is on HUD's loan limit lookup.

The catch, and it is a real one

FHA mortgage insurance usually never goes away. You pay 1.75% of the loan upfront, plus an annual premium — commonly 0.55% of the balance, split across your monthly payments. If you put down less than 10%, that annual premium lasts the entire life of the loan, no matter how much equity you build. Put down 10% or more and it drops off after 11 years.

On a $250,000 loan the annual premium is roughly $115 a month. Over thirty years, that is a substantial sum paid for insurance that protects the lender, not you.

The standard escape is to refinance into a conventional loan once you hold about 20% equity. That works, but it depends on rates at the time, so treat it as a plan rather than a certainty.

VA: the best terms in American lending

If you are eligible, nothing else comes close. No down payment, no mortgage insurance at all, and a rate that is typically below conventional.

Eligibility covers veterans, active-duty service members, many National Guard and Reserve members, and some surviving spouses. The cost is a one-time funding fee: 2.15% of the loan for a first use with nothing down, 1.5% if you put down 5% or more, and 3.3% on a later use with nothing down. It can be rolled into the loan.

The funding fee is waived entirely for veterans receiving VA disability compensation at any rating, for surviving spouses receiving Dependency and Indemnity Compensation, and for Purple Heart recipients on active duty. On a $300,000 loan that is more than $6,000. If a disability claim is still pending when you close, you may be charged and then refunded — ask the lender to note it before closing rather than chasing it afterward.

Two more things worth knowing: VA entitlement can be restored and reused, so a VA loan in the past does not rule out another one; and the VA imposes no loan limit for a borrower with full entitlement, though the lender still has to approve the amount.

USDA: "rural" is far broader than it sounds

Zero down, and cheaper mortgage insurance than FHA — a 1% guarantee fee upfront and about 0.35% a year. Most people rule themselves out on the word "rural" without ever checking the map.

Eligible areas include a great many small towns, and the outer suburbs of mid-sized cities. Entire counties qualify in much of the country. It takes thirty seconds to check an address on USDA's eligibility map, and it is worth doing before you assume.

Two different USDA programs

• Section 502 Guaranteed — a normal bank loan that USDA guarantees. Household income generally up to 115% of area median; the standard baseline is $122,800 for a household of one to four, higher for five or more and higher again in expensive areas.
• Section 502 Direct — USDA is the lender. For very low and low income households, and it comes with payment assistance: a subsidy that can cut the effective interest rate to as little as 1%. Almost nobody outside the program has heard of it, and no bank will mention it, because no bank is involved.

If your income is low enough for Direct, it is usually the better deal by a wide margin. Apply through your USDA Rural Development state office.

Conventional at 3% down: the one that can beat FHA

Fannie Mae's HomeReady and Freddie Mac's Home Possible allow 3% down for borrowers with income at or below 80% of area median. Slightly less down than FHA, and a higher credit bar — usually 620.

The reason to care is mortgage insurance. Conventional PMI cancels: you can request removal at 80% loan-to-value, and the servicer must drop it automatically at 78%. On a normal amortization schedule that is somewhere around year ten — and then your payment falls and stays fallen.

With a decent credit score, a conventional 3% loan often costs less over time than FHA even when the monthly payment starts higher. Ask any lender to quote you both and compare the totals, not the headline rate.

Section 184, for Native American borrowers

A HUD program for members of federally recognized tribes and for Alaska Native villages: 2.25% down on loans above $50,000, 1.25% below that, with a single annual guarantee fee and no credit score minimum set by HUD. It works on tribal trust land, where ordinary mortgages generally cannot. Details at HUD's Section 184 page.

If you have a Housing Choice Voucher

Your voucher may be able to pay a mortgage instead of rent. The Housing Choice Voucher Homeownership Program lets a participating housing agency apply the same monthly subsidy to homeownership costs. It is optional for agencies, so not every one runs it, and it comes with conditions — usually a minimum income from employment, first-time buyer status, and a homeownership counseling course. Ask your agency directly whether they operate it; it is almost never advertised. See how the voucher program works.

What lenders actually look at

Debt-to-income, not salary

Your monthly debt payments — the new mortgage plus car loans, student loans, credit card minimums and child support — divided by gross monthly income. Roughly 43% is the common ceiling, though FHA and automated underwriting will go higher with compensating factors such as cash reserves or a long stable job history.

The practical implication: paying off a car loan can raise your buying power more than a raise would. Removing a $400 payment frees roughly $400 of monthly capacity, which at typical rates supports tens of thousands of dollars of additional loan.

No credit score is not the same as bad credit

If you have never borrowed, FHA, VA and USDA all permit manual underwriting with non-traditional credit: twelve months of on-time rent, utilities, phone, insurance or childcare payments, documented. Not every lender will do the work. Find one that will rather than accepting the first refusal.

Income that counts

Self-employment usually needs two years of tax returns, and lenders use your net figure — the deductions that cut your tax bill also cut your borrowing power. Social Security, SSDI, disability and pension income all count, and non-taxable income can often be "grossed up" by 15% to 25% for qualifying purposes, which is another thing you generally have to ask about.

Get free help before you talk to a lender

HUD-approved housing counseling agencies are free or very low cost, are not paid by lenders, and exist precisely for this. A counselor will review your credit, tell you which programs you fit, and identify the down payment assistance in your area — which frequently requires a counseling certificate anyway.

Find one at HUD's counselor search or call 1-800-569-4287.

• Get Loan Estimates from at least three lenders. It is a standardized form, so the columns line up and you can compare them honestly.
• Applying to several lenders within a short window counts as one inquiry for scoring purposes. Shopping around does not wreck your credit.
• A builder's or agent's preferred lender is not automatically the best price. Take the incentive if it is real, but price it against two outside quotes first.
• Nobody should charge you a fee to be pre-approved.

The down payment itself is usually the real obstacle, and there is more help available for it than most buyers realize — grants, matched savings and lending circles are covered in getting to the down payment.