Saving for a home can feel overwhelming when you think you need to put 20% down before you can qualify for a mortgage. If you are looking to buy your first home, that amount could take years to save, especially while paying rent and managing other expenses.
Fortunately, you may qualify for a conventional mortgage with as little as 3% down. Several low-down-payment programs are available to eligible borrowers, although each has its own requirements. Your credit history, income, property type, occupancy plans, and overall financial situation can affect which options are available to you.
A smaller down payment can make homeownership more accessible, but it also means borrowing more and potentially paying private mortgage insurance (PMI). Before deciding how much to save, it is important to understand the minimum requirements, the costs involved, and whether a low-down-payment mortgage fits your budget.
What Is the Minimum Down Payment for a Conventional Loan?
The minimum down payment for some conventional mortgages is 3% of the home’s purchase price. However, not every borrower qualifies for a 3% down-payment option.
Fannie Mae offers HomeReady and a standard 97% loan-to-value option, while Freddie Mac offers low-down-payment programs such as Home Possible and HomeOne. These programs have different eligibility requirements.
For example, Fannie Mae’s standard 97% LTV purchase option generally requires at least one borrower to be a first-time homebuyer, while HomeReady has income requirements and does not require borrowers to be first-time buyers. Freddie Mac’s HomeOne is designed for eligible first-time homebuyers. (Fannie Mae, Freddie Mac)
A 3% down payment means you contribute $3,000 for every $100,000 of the home’s purchase price. Your mortgage finances the remaining amount, subject to approval and the program’s terms.
If you do not meet the requirements for a 3% down-payment program, a lender may offer a conventional mortgage that requires a larger contribution. The minimum can vary by loan purpose, property type, occupancy, and lender requirements.
How Much Is a 3% Down Payment?
The amount you need depends on the purchase price. Here are examples of what a 3% down payment looks like at different home prices.
| Home purchase price | 3% down payment | Mortgage amount before other adjustments |
|---|---|---|
| $200,000 | $6,000 | $194,000 |
| $250,000 | $7,500 | $242,500 |
| $300,000 | $9,000 | $291,000 |
| $350,000 | $10,500 | $339,500 |
| $400,000 | $12,000 | $388,000 |
These figures show only the down payment and estimated loan amount. You will also need to account for closing costs, prepaid expenses, and any other funds required for the transaction.
For example, if you buy a $300,000 home with 3% down, your down payment would be $9,000. If your closing costs were $9,000, you would need $18,000 before accounting for deposits, credits, assistance, or other adjustments.
Use the down payment calculator to estimate your contribution, then review down payment versus closing costs to understand your total upfront expenses.
Which Conventional Mortgage Programs Allow 3% Down?
Several conventional mortgage programs offer low-down-payment options, but they are not interchangeable. The right choice depends on your eligibility and the property you want to purchase.
1. Fannie Mae HomeReady
HomeReady is designed to help eligible low- and moderate-income borrowers buy a home with a smaller down payment. It permits down payments as low as 3%, and qualifying income generally must not exceed 80% of the area median income.
The program can accept eligible gifts and grants toward the down payment and closing costs. It also has specific underwriting and property requirements. HomeReady does not require borrowers to be first-time homebuyers, although other eligibility rules still apply. (Fannie Mae HomeReady)
This option may be worth exploring if your household income meets the program limits and you want to reduce the amount of savings required upfront.
2. Fannie Mae Standard 97% LTV Option
Fannie Mae’s standard 97% LTV option allows eligible borrowers to finance up to 97% of a home’s value in qualifying purchase transactions. At least one borrower generally must be a first-time homebuyer for this standard purchase option.
Unlike HomeReady, the standard 97% LTV option does not have the same 80%-of-area-median-income limit. However, it still has requirements concerning the loan, property, borrower, and underwriting process. (Fannie Mae 97% LTV options)
3. Freddie Mac Home Possible
Home Possible offers eligible borrowers down payments as low as 3%. It has an income limit of generally 80% of the area median income and allows certain eligible sources of down-payment and closing-cost funds, including gifts and grants.
Freddie Mac also offers reduced mortgage insurance options under the program’s requirements. Your lender can confirm whether your income, property, and application meet the current guidelines. (Freddie Mac Home Possible)
4. Freddie Mac HomeOne
HomeOne is another Freddie Mac conventional mortgage option that permits eligible first-time homebuyers to put down as little as 3%. It is intended to expand access to homeownership for qualifying buyers who need a lower upfront contribution.
HomeOne has its own borrower and property requirements, so ask your lender to compare it with other available programs rather than assuming every applicant qualifies. (Freddie Mac HomeOne)
What to Read Next
Who Qualifies for a Conventional Mortgage With 3% Down?
A 3% down-payment option does not mean automatic mortgage approval. Lenders still evaluate whether you meet the program’s requirements and can afford the loan.
Common factors include:
- Credit history: Your credit profile can affect eligibility, interest-rate pricing, and mortgage insurance costs.
- Income: Some programs have income limits, while others do not. Lenders must still verify sufficient qualifying income.
- Debt-to-income ratio: Your existing monthly debts and proposed housing payment affect how much you may be able to borrow.
- Property type and occupancy: The property must meet the requirements of the specific mortgage program, including rules about whether you will occupy it as your primary residence.
- First-time homebuyer status: Certain low-down-payment options require at least one borrower to be a first-time homebuyer, while others do not.
- Documentation: Lenders generally verify your income, assets, debts, and the source of your down-payment funds.
Some programs may also require homebuyer education, depending on the borrower’s circumstances.
If you are unsure whether your finances are ready for a mortgage application, use the first-time home buyer readiness checker and speak with a lender about the requirements for your situation.
Do You Have to Pay PMI With a 3% Down Payment?
In most cases, a conventional mortgage with 3% down requires private mortgage insurance, or PMI. That is because you are borrowing 97% of the home’s value, leaving you with an initial equity share of 3%.
PMI protects the lender against certain losses if you default; it does not protect you from foreclosure or missed-payment consequences. Its cost depends on factors such as your credit profile, loan-to-value ratio, and mortgage terms.
For many eligible conventional mortgages, you can request PMI cancellation when your loan balance reaches 80% of the home’s original value, subject to the applicable conditions. Automatic termination generally applies when the balance is scheduled to reach 78% of the original value, provided the loan is current. Other rules may apply in certain situations.
A low-down-payment mortgage can still be a sensible option if you can comfortably afford the full payment. However, compare the cost of PMI with the benefits of buying sooner rather than focusing only on the amount you need upfront.
Read more about how down payment size affects your mortgage rate to understand how your contribution can affect loan pricing and overall borrowing costs.
Is a Conventional Loan With 3% Down Better Than FHA?
Not automatically. Both conventional and FHA mortgages can help eligible buyers purchase a home with a relatively small down payment, but they have different requirements and costs.
| Feature | Conventional mortgage with 3% down | FHA mortgage |
|---|---|---|
| Potential minimum down payment | 3% for eligible programs | 3.5% for eligible borrowers meeting applicable credit requirements |
| Mortgage insurance | PMI generally required with less than 20% down | FHA mortgage insurance applies under program rules |
| Eligibility | Depends on the conventional program and lender | Depends on FHA and lender requirements |
| Income limits | Apply to certain conventional programs, not all | No general FHA-wide income limit, but other requirements apply |
| Insurance cancellation | PMI may be cancellable under applicable rules | FHA mortgage insurance follows different rules |
The lower down payment alone does not determine which mortgage is better. Your credit profile, interest rate, insurance costs, upfront fees, and expected time in the home can all affect the comparison.
Ask lenders to provide estimates for both loan types if you qualify. Compare the total upfront cash, monthly payment, and long-term costs rather than choosing solely on the minimum down payment.
Should You Put Only 3% Down or Save More?
Putting down 3% can help you buy a home sooner, but saving a larger amount can reduce the mortgage balance and may lower your monthly payment. The right choice depends on your financial situation.
A smaller down payment may make sense if you have stable qualifying income, can afford the full housing payment, and would otherwise spend years saving while paying rent.
Saving more may be a better choice if a larger contribution would significantly improve affordability, reduce PMI costs, or help you qualify for better loan pricing. However, do not use every dollar of your savings just to increase your down payment.
Before deciding, consider:
- Your expected monthly payment, including taxes, insurance, and PMI.
- The cash you will need for closing costs and moving.
- Whether you will have emergency savings after closing.
- The difference in interest and insurance costs at different down-payment levels.
- How long you expect to stay in the home.
Compare putting 20% down versus keeping more cash before choosing the amount that works best for you.
Frequently Asked Questions
Conclusion
The minimum down payment for a conventional mortgage can be as low as 3% if you qualify for an eligible program. Options such as HomeReady, the standard 97% LTV program, Home Possible, and HomeOne can help eligible buyers purchase a home without saving 20% first.
However, a low down payment does not guarantee approval, and it generally means a larger loan balance and PMI. Compare the eligibility rules, monthly payment, insurance, closing costs, and long-term borrowing costs before choosing a mortgage.
Ask a lender to compare available programs using your actual financial information. The best option is one that lets you buy a home while keeping the mortgage payment manageable and enough savings available for life after closing.
