The Lowest Down Payment for a Conventional Mortgage
Conventional mortgages now accept down payments as low as 3 percent
A conventional mortgage is a loan from a bank or lender that is not backed by the federal government—unlike FHA or VA loans. The lowest down payment for a conventional mortgage is 3 percent of the home's purchase price. This means on a $300,000 home, you would put down $9,000.
Not all lenders offer 3 percent down; some require 5 or 10 percent. The lower your down payment, the higher your interest rate and monthly payment are likely to be, and you will almost certainly pay private mortgage insurance (PMI)—a monthly fee that protects the lender if you stop paying. PMI stays on your loan until you have paid down the principal to 80 percent of the home's original value or until you refinance.
The 3 percent option exists because of programs like Fannie Mae's HomeReady and Freddie Mac's Home Possible, which are designed to make conventional loans reachable for first-time buyers and lower-income households. These programs have income limits and other rules, but they are widely available through most mortgage lenders.
Key Takeaways
- Conventional mortgages with 3 percent down are available through Fannie Mae HomeReady and Freddie Mac Home Possible programs at most lenders.
- You will pay private mortgage insurance (PMI) on any conventional loan with less than 20 percent down, adding $100 to $300+ per month depending on the loan size.
- Your credit score, debt-to-income ratio, and savings history matter more with a low down payment, and lenders will verify your income and assets carefully.
- PMI can be removed once you reach 80 percent loan-to-value through principal paydown or refinancing, which typically takes 5 to 10 years.
How 3 percent down compares to other down payment options
The choice between 3, 5, 10, or 20 percent down affects your monthly payment, insurance costs, and how quickly you build equity. A lower down payment means a larger loan amount, which raises your monthly mortgage payment. It also triggers PMI, which does not build equity—it only protects the lender.
With 20 percent down, you avoid PMI entirely and often may have access to for better interest rates. However, saving $60,000 on a $300,000 home takes years for most buyers. The 3 percent option lets you buy sooner, but you pay more over time through PMI and a higher interest rate. The 5 or 10 percent middle ground is a compromise: less PMI than 3 percent, but still reachable for many buyers without waiting years to save.
| Down Payment | Amount on $300,000 Home | Loan Amount | PMI Required? | Typical Monthly PMI Cost |
|---|---|---|---|---|
| 3% | $9,000 | $291,000 | Yes | $145–$290 |
| 5% | $15,000 | $285,000 | Yes | $130–$260 |
| 10% | $30,000 | $270,000 | Yes | $100–$200 |
| 20% | $60,000 | $240,000 | No | $0 |
The actual PMI cost depends on your credit score, the loan amount, and the lender's pricing. A higher credit score can lower your PMI rate by 0.25 to 0.5 percent. The numbers above are estimates; ask your lender for a specific quote.
What lenders look for when you put down 3 percent
Lenders take more risk with a 3 percent down payment, so they scrutinize everything else. Your credit score matters more than it does with a larger down payment. Most lenders require a score of at least 620 for a conventional loan, but 3 percent programs often want 640 or higher. A score above 700 will save you money on your interest rate and PMI.
Your debt-to-income ratio—the percentage of your monthly income that goes to debt payments—cannot exceed 43 to 50 percent, depending on the lender. This includes your new mortgage payment, car loans, student loans, credit cards, and any other monthly obligations. Lenders verify this by looking at your tax returns, pay stubs, and bank statements for the past two months.
You will also need to show cash reserves—savings left over after the down payment and closing costs. With 3 percent down, lenders often want to see two to three months of mortgage payments in the bank. This proves you can handle an emergency without defaulting. Some programs allow gifts from family to cover the down payment, but the reserves must be your own money.
Down payment assistance and gift money
If you do not have $9,000 saved for a 3 percent down payment, you have two main options: down payment assistance programs and gifts from family.
Down payment assistance comes from nonprofits, state housing agencies, and some employers. These programs may offer grants (money you do not repay) or forgivable loans (loans that disappear if you stay in the home for a set period). The amount varies widely—some cover the full down payment, others cover a portion. Your state housing finance agency website lists programs available in your area. You can also search through the National Council of State Housing Agencies or ask your lender which programs they work with.
Gift money from a spouse, parent, sibling, or grandparent can count toward your down payment. The lender will ask for a signed letter from the gift-giver stating the money is a gift, not a loan you have to repay. The money must come from the gift-giver's own account; it cannot be borrowed. The gift-giver does not need to be related to you in some programs, but rules vary by lender.
Private mortgage insurance and how to remove it
PMI is an insurance policy that pays the lender if you default on the loan. It protects the lender, not you, but you pay for it. On a conventional loan with less than 20 percent down, PMI is mandatory. The cost is rolled into your monthly payment or paid upfront as a lump sum at closing—ask your lender which method they use.
PMI stays on your loan until you reach 80 percent loan-to-value (LTV). This means the remaining loan balance is 80 percent or less of the home's original purchase price. On a $300,000 home with a $291,000 loan, you reach 80 percent LTV when the loan balance drops to $240,000. Depending on your interest rate and loan term, this takes 5 to 10 years of regular payments.
You can remove PMI faster by refinancing into a new loan with a larger down payment, or by paying down the principal more aggressively. Some lenders allow you to request PMI removal once you reach 80 percent LTV; others remove it automatically. Check your loan documents or call your lender to confirm their policy. If you refinance, you will pay closing costs again, so calculate whether the PMI savings justify the cost.
Closing costs and the true cost of a low down payment
Closing costs are fees charged by the lender, title company, and other parties involved in the mortgage. They typically range from 2 to 5 percent of the loan amount—on a $291,000 loan, that is $5,800 to $14,550. Common closing costs include the loan origination fee, appraisal, title search, title insurance, homeowners insurance, property taxes, and attorney fees.
With a 3 percent down payment, closing costs can be a barrier. You need $9,000 for the down payment plus $5,800 to $14,550 for closing costs—a total of $14,800 to $23,550 before you own the home. Some lenders allow you to roll closing costs into the loan, which means you borrow the money instead of paying it upfront. This increases your monthly payment and the total interest you pay over the life of the loan.
Down payment assistance programs sometimes cover closing costs as well as the down payment. Ask your lender or local housing agency whether this is an option. If you roll closing costs into the loan, your lender will tell you the new loan amount and monthly payment before you sign anything.
Interest rates and how down payment size affects your rate
Lenders typically offer lower interest rates to borrowers with larger down payments because the lender's risk is lower. A borrower with 20 percent down is less likely to default than one with 3 percent down. The difference in rate can be 0.25 to 0.75 percent, which translates to $50 to $150+ per month on a $300,000 loan.
Your credit score, loan term (15 or 30 years), and the current market also affect your rate. Shop with at least three lenders to compare rates and closing costs. A lender offering a lower rate may charge higher closing costs, or vice versa. Ask each lender for a Loan Estimate, which shows the interest rate, monthly payment, and all closing costs side by side. You have the right to receive this within three business days of submitting your application.
Frequently Asked Questions
Can I use a gift from a friend for my down payment?
Most lenders require the gift-giver to be related to you by blood or marriage, though some allow unrelated gifts. The gift-giver must sign a letter stating it is a gift, not a loan. Ask your lender about their specific policy before accepting money from anyone.
What happens if my home value drops after I buy it?
If your home loses value, you may owe more than the home is worth—called being underwater. PMI does not protect you in this case; it only protects the lender. You will still owe the full loan amount and still pay PMI until you reach 80 percent LTV based on the original purchase price, not the current value.
Can I remove PMI before reaching 80 percent loan-to-value?
Some lenders allow early PMI removal if you have paid consistently and your credit score has improved significantly. This is not may provide and depends on your lender's policy. Call your lender to ask; do not assume it is possible.
Is a 3 percent down payment better than an FHA loan?
Both allow low down payments, but they work differently. FHA loans require 3.5 percent down but have mortgage insurance that never goes away. Conventional 3 percent loans have PMI that can be removed. FHA loans may have lower credit score requirements. Compare rates and total costs from both types before deciding.
What if I do not have enough for closing costs even with a 3 percent down payment?
Ask your lender whether you can roll closing costs into the loan, or search for down payment assistance programs in your state that cover both down payment and closing costs. Some employers and nonprofits also offer closing cost help. Your lender can tell you which programs they work with.