How to Buy a Home Without 20% Down

The 20% down payment is one specific choice, not a requirement. Most buyers who own homes today didn't put 20% down.

According to the National Association of Realtors, the median down payment for first-time buyers has been 6%–8% in recent years, not 20%. The 20% figure exists as an option — the option that eliminates private mortgage insurance. It is not a rule, a requirement, or a test of whether you're a serious buyer.

What follows is a practical guide to every path that gets you into homeownership without 20% down — what each requires, what each costs, how they compare over time, and how to combine them for the lowest possible upfront cash requirement.

All Seven Paths at a Glance

Before the detailed breakdown of each path: here is the full comparison in one table. Find your row, then read the section that applies to your situation.

Path 1: VA Loans — $0 Down for Veterans and Service Members

If you are a veteran, active-duty service member, or qualifying surviving spouse, the VA home loan benefit is the strongest low-down-payment option available in any market. VA loans require no down payment, carry no private mortgage insurance, and typically offer competitive interest rates. For eligible buyers, there is almost no financial argument for choosing a different path first.

What VA Loans Cost

VA loans do carry a VA funding fee — a one-time fee ranging from 1.25% to 3.3% of the loan amount depending on service type, down payment (if any), and whether it is the borrower's first VA loan use. This fee can be rolled into the loan balance, meaning it requires no out-of-pocket payment at closing. Veterans with service-connected disabilities are exempt from the funding fee.

One Often-Missed VA Advantage: Assumability

VA loans are assumable — a future buyer can take over your loan at your original interest rate, even if they are not a veteran. In a period where rates have risen significantly from recent lows, an assumable low-rate VA loan is a meaningful asset when you eventually sell.

Path 2: USDA Loans — $0 Down for Rural and Suburban Colorado

The USDA Rural Development single-family housing program offers 100% financing — zero down payment — for buyers purchasing in eligible rural and suburban areas. Many Colorado areas outside the Denver metro qualify, including parts of El Paso County, Larimer County, Pueblo County, and most small towns across the state. USDA has an online address lookup tool that confirms eligibility for specific properties.

USDA Requirements and Costs

• Income limit: Household income must be at or below 115% of area median income. For a family of 4, this is approximately $98,000–$115,000 in most Colorado areas.
• Credit: No official minimum, but most lenders require 580–620+.
• Guarantee fees: USDA charges a 1% upfront guarantee fee (rolled into loan) and a 0.35% annual fee — less than FHA's mortgage insurance premium.
• Property: Must be in a USDA-eligible area and meet USDA property standards.

Path 3: FHA + Colorado DPA — Effectively $0 Down for Eligible Buyers

The combination of an FHA loan and Colorado's CHFA down payment assistance is the path that eliminates the down payment requirement for most first-time buyers in Colorado who qualify. CHFA provides 3%–4% of the first mortgage as a deferred 0% second mortgage, which is enough to cover FHA's 3.5% down payment requirement — effectively bringing the buyer's down payment out-of-pocket to $0.

CHFA Eligibility Requirements

• 620+ credit score: Firm across all CHFA programs. 619 qualifies for FHA but not CHFA DPA.
• Income within county limits: Varies by county and household size — roughly $95,000–$110,000 for 1–2 person households in Denver metro. Verify at chfainfo.com.
• First-time buyer status: Not owned primary residence in past 3 years (with some exceptions for HomeAccess and targeted census tracts).
• Homebuyer education: Required before closing — CHFA-approved course, 6–8 hours, ~$50–$75.

With CHFA DPA covering the down payment, the buyer's remaining cash requirement is closing costs (~2%–5% of purchase price) and reserves (~3 months of housing payments). Combined with seller concessions of 3%–6%, the total buyer cash requirement can drop to reserves only — approximately $7,800–$9,500 on a $400,000 purchase.

MetroDPA, which serves the Denver metro area, is an additional program to compare. Details at metrodpa.org.

Path 4: FHA Loans Without DPA — 3.5% Down

When DPA programs are not available — because of credit below 620, income above program limits, or other eligibility gaps — the FHA loan is the most widely accessible conventional mortgage for low-down-payment buyers. FHA requires 3.5% down for buyers with 580+ credit, and accepts buyers down to 500 with a 10% down payment.

The important FHA-specific cost to understand is mortgage insurance premium (MIP). Unlike conventional PMI, FHA MIP on a low-down-payment loan stays for the life of the loan — it cannot be canceled by reaching 20% equity. Removing FHA MIP requires a refinance into a conventional product once sufficient equity exists. Plan for this when evaluating the long-term cost of the FHA path.

Path 5: HomeReady and Home Possible — 3% Down Conventional

Fannie Mae's HomeReady and Freddie Mac's Home Possible are conventional mortgage programs allowing 3% down payment for buyers with household income at or below 80% of area median income. Unlike FHA, conventional PMI from these programs cancels automatically when you reach 22% equity — you are not locked into mortgage insurance for life.

Why HomeReady/Home Possible May Beat FHA for Some Buyers

• PMI cancels: When equity reaches 20%–22%, PMI stops. FHA MIP at low down payments stays for the life of the loan.
• No upfront insurance premium: FHA charges 1.75% upfront MIP rolled into the loan. Conventional PMI is only the ongoing monthly amount.
• Rate can be competitive: With 680+ credit, conventional rates often beat FHA rates.
• Tradeoff: Income limit of 80% AMI — buyers above this threshold should look at conventional 5% instead.

Path 6: Conventional 5% Down — No Income Limits

Standard conventional financing with 5% down is available to buyers with 620+ credit and no income limit restrictions. PMI applies at 5% down and cancels when you reach 20%–22% equity. This path is better than HomeReady/Home Possible for buyers whose income exceeds 80% AMI but who still don't want to wait to save 20%.

On a $400,000 purchase, 5% down is $20,000 — significantly less than the $80,000 required for 20% down, with the PMI cost as the tradeoff. PMI at 5% down runs approximately $200–$320/month on this loan size, canceling in 8–10 years at standard amortization (or sooner with appreciation).

Path 7: Seller Financing — Negotiated Down Payment, No Bank Required

Seller financing removes the bank from the transaction entirely. The seller acts as the lender, setting the down payment, interest rate, and loan terms directly through negotiation. There is no credit minimum — the seller evaluates the buyer's situation directly. There is no bank's underwriting system to satisfy.

The down payment in seller financing is negotiated, not fixed. A motivated seller may accept 5%–10% down. A seller seeking risk mitigation for a buyer with limited credit history may require 15%–20%. The range is wider than any conventional program — in either direction.

When Seller Financing Makes Sense for a Below-20% Down Payment Goal

• Credit below 580: FHA is not available; seller financing is. The down payment, while higher than FHA, is achievable without waiting for credit improvement.
• Non-W2 income: Self-employed, contractors, and gig workers with income documentation challenges can negotiate directly with a seller who can evaluate the full financial picture.
• Property doesn't qualify for conventional financing: Older homes, rural properties, and mixed-use buildings that banks won't finance may qualify for seller financing terms.

Understanding PMI and Mortgage Insurance: What You're Actually Paying

Private mortgage insurance (PMI) is the cost of buying with less than 20% down on a conventional loan. It protects the lender — not you — against default risk. The CFPB's PMI guide explains what it covers and when it can be removed.

The important distinction: conventional PMI cancels. FHA MIP on a low-down-payment loan does not (without a refinance). This difference is meaningful over the life of the loan.

The Stacking Strategy: How to Combine Programs for the Lowest Cash at Closing

Most buyers think about DPA, seller concessions, and gift funds as separate options. The real question is how to combine them. When all three align, a buyer can reach closing with a fraction of what conventional wisdom says is required.

The full stack — DPA + seller concessions + gift funds — does not work in every scenario. It requires a seller willing to negotiate concessions, a DPA-eligible buyer, and documented gift funds. But in a market where sellers have reduced pricing power (price-cut listings, longer days on market), these negotiations become more viable. The individual components are real, available, and combinable.

5-Year Total Cost Comparison Across Paths

The right comparison is not just down payment size — it is the total financial picture over the period you're likely to own before a life change (refinance, sale, family change). The table below compares the five most common paths on a $400,000 Colorado purchase.

Which Path Fits Your Situation?

Use this matching guide to find your starting path. Each situation maps to the path that typically produces the best combination of eligibility, cost, and access.

Common Mistakes When Buying Without 20% Down

Mistake 1: Focusing Only on the Down Payment, Not Total Cash to Close

The down payment is one piece. Closing costs (2%–5% of purchase price) and reserves (2–3 months of housing payments) are also required. A buyer who saves exactly 3.5% for an FHA down payment and has nothing left cannot close. Budget for all three buckets — or use seller concessions and gift funds to cover the others.

Mistake 2: Applying for New Credit or Making Large Purchases Before Closing

Every hard credit inquiry and every new debt obligation during the mortgage process affects your approval. A car payment taken out six weeks before closing has derailed more than one purchase. Hold everything steady from application to keys.

Mistake 3: Using FHA When Conventional Is Available and Cheaper Long-Term

FHA's MIP stays for the life of a low-down-payment loan. Conventional PMI cancels at 20% equity. For buyers with 620+ credit who are eligible for both, the long-term cost of conventional is often lower despite a slightly higher monthly payment in the early years. Run the comparison explicitly with your lender.

Mistake 4: Skipping the DPA Eligibility Check

Most DPA-eligible buyers don't know they are DPA-eligible. A buyer who qualifies for CHFA DPA and buys FHA-only instead of FHA + DPA is leaving $15,000–$25,000 of down payment assistance on the table. The 30 minutes to get formally evaluated is one of the highest-value actions in the entire homebuying process.

Mistake 5: Assuming Low Down Payment Means Fragile Ownership

A buyer who puts 3.5% down with adequate reserves, a stable income, and a realistic maintenance budget is in a fundamentally stronger position than a buyer who puts 20% down and depletes every dollar of savings to do it. Down payment size is one variable in a complete financial picture — not the only indicator of ownership stability.

Frequently Asked Questions

Quick answers to the most common questions about buying without 20% down.

Can I really buy a house with no money down?

Yes — through two government-backed programs. VA loans require no down payment for eligible veterans, active-duty service members, and qualifying surviving spouses. USDA loans require no down payment for properties in eligible rural areas with buyers within income limits. For non-VA, non-rural buyers, FHA + CHFA DPA can bring the effective down payment to $0 for buyers who meet the 620+ credit and income requirements. Details at chfainfo.com.

What is the lowest down payment for a conventional loan?

3% down, through Fannie Mae's HomeReady and Freddie Mac's Home Possible programs. Both require 620+ credit and household income at or below 80% of area median income. Standard conventional financing starts at 5% for buyers above the AMI limits. PMI applies at all conventional down payments below 20% and cancels automatically when equity reaches 22%.

How does PMI get removed?

For conventional loans, PMI cancels automatically when your loan balance reaches 78% of the original purchase price based on your amortization schedule. You can request removal at 80% LTV once you believe your equity is there through a combination of payments and appreciation. For FHA loans with less than 10% down, MIP stays for the life of the loan — removal requires refinancing into a conventional product once you have sufficient equity. The CFPB's PMI guide explains the cancellation requirements in detail.

Can I use gift money for a down payment?

Yes — on FHA loans, gift funds from family members can cover 100% of both the down payment and closing costs. The gift must be documented with a written letter from the donor confirming it is a gift, not a loan. Conventional programs also allow gift funds with similar documentation requirements. Lenders will scrutinize any large deposits in the past 60–90 days, so gift funds should be transferred and documented well before the mortgage application. The CFPB's down payment guidance covers gift fund requirements.

Do seller concessions count as part of my down payment?

No — seller concessions pay toward your closing costs, not your down payment. The down payment must come from the buyer's own funds, gift funds, or a DPA program. But seller concessions are valuable because they free up cash you would have spent on closing costs, allowing you to preserve more savings for reserves or other needs. On an FHA loan, sellers can contribute up to 6% of the purchase price toward buyer closing costs.

Is FHA always better than conventional for low down payment buyers?

Not always — it depends on your credit score and how long you plan to stay in the home. FHA MIP stays for the life of the loan if you put less than 10% down. Conventional PMI cancels at 20% equity. For buyers with 680+ credit, conventional PMI is often less expensive per month than FHA MIP, and the lack of an upfront insurance premium reduces the total loan balance. For buyers with 620–679 credit, the rate difference between FHA and conventional may favor FHA. Run both scenarios explicitly with your lender before choosing.

What happens to my DPA if I sell before the program's requirements are met?

CHFA's DPA is a deferred second mortgage — the balance becomes due when you sell the home, refinance, or otherwise exit the primary mortgage. The repayment comes from your sale proceeds, not out-of-pocket after closing. There is no interest and no monthly payment; you simply repay the original assistance amount at sale. NeighborhoodLIFT (when active) is a forgivable structure that can reduce or eliminate the balance if you remain in the home for the required period. Full repayment structure details at chfainfo.com.

Sources & References

All program data from official administering sources. Requirements change — verify with lenders and program agencies before acting.

1. National Association of Realtors — Home Buyers and Sellers Generational Trends Report

2. U.S. Department of Veterans Affairs — VA Home Loans

3. USDA Rural Development — Single Family Housing Programs

4. U.S. Department of Housing and Urban Development — FHA Requirements

5. Fannie Mae — HomeReady Mortgage

6. Freddie Mac — Home Possible Mortgage

7. Colorado Housing Finance Authority (CHFA) — Down Payment Assistance

8. CHFA — Homeownership Programs Overview

9. MetroDPA — Denver Metro Down Payment Assistance

10. Consumer Financial Protection Bureau — What Is Private Mortgage Insurance?

11. Consumer Financial Protection Bureau — Owning a Home Resources

12. Consumer Financial Protection Bureau — Mortgage Loan Options

13. Freddie Mac — Primary Mortgage Market Survey

14. Redfin — Colorado Housing Market

Disclosure: Educational content only. Not legal, financial, or mortgage advice. Program requirements, income limits, and terms change — verify with CHFA, MetroDPA, or a licensed Colorado mortgage professional before making any decision.