What Down Payment Do You Actually Need for a Conventional Loan?
Conventional loans now accept down payments as low as 3 percent, though most lenders require 5 to 20 percent
A conventional loan is a mortgage that is not backed by a government agency like the Federal Housing Administration or the Department of Veterans Affairs. The down payment you need depends on your credit score, the lender you choose, and the specific loan program they offer. There is no single federal minimum—each lender sets its own floor, and that floor varies.
The most common range is 5 to 20 percent of the home's purchase price. Some lenders will go as low as 3 percent, but those loans usually come with higher interest rates and require you to pay private mortgage insurance (PMI), which protects the lender if you stop paying. A few lenders still require 10 or 20 percent down. The amount you put down affects your monthly payment, your interest rate, and how much you pay over the life of the loan.
Key Takeaways
- Conventional loans typically require 3 to 20 percent down, but the exact minimum depends on your lender and credit score, not on a federal rule.
- Down payments below 20 percent trigger private mortgage insurance, which adds to your monthly payment until you build enough equity in the home.
- A lower down payment means a smaller upfront cost but a larger loan amount, higher monthly payments, and more interest paid over time.
- Your credit score, debt-to-income ratio, and savings history all affect whether a lender will accept a 3 percent down payment or require more.
How lenders decide your minimum down payment
Lenders use your credit score as the primary filter. If your score is 740 or higher, most conventional lenders will offer 3 to 5 percent down. If it is between 680 and 739, you may be limited to 5 to 10 percent. Below 680, many lenders will not offer conventional loans at all, or they will require 15 to 20 percent down.
Your debt-to-income ratio (DTI) also matters. This is the percentage of your monthly income that goes to debt payments—car loans, credit cards, student loans, and the new mortgage payment combined. Most lenders want your DTI to be 43 percent or lower. If you are already close to that limit, a lender may push your down payment requirement up to reduce the size of the loan and your monthly payment.
Your savings history and employment record matter too. Lenders want to see that you have held your job for at least two years and that you have not recently withdrawn large sums from your savings account. If your down payment money came from a gift, you will need a signed letter from the person who gave it to you, stating that it is a gift and not a loan you have to repay.
What happens when you put down less than 20 percent
If your down payment is less than 20 percent, you will pay private mortgage insurance (PMI). This is an insurance policy that protects the lender, not you. It typically costs between 0.5 and 1.5 percent of your loan amount per year, added to your monthly mortgage payment. On a $300,000 loan, that could be $125 to $375 per month.
PMI stays on your loan until you have paid down the principal to 80 percent of the original home value or until you refinance. If you put down 5 percent on a $300,000 home, you would need to pay the loan down to $240,000 before PMI drops off. Depending on your interest rate and loan term, that could take 8 to 12 years.
Some lenders offer lender-paid mortgage insurance (LPMI) instead, where the lender pays the insurance premium upfront and builds it into your interest rate. This means no separate PMI payment, but your interest rate will be higher for the entire life of the loan. Whether LPMI or borrower-paid PMI is better depends on how long you plan to stay in the home.
The real cost of a smaller down payment
Putting down 3 percent instead of 20 percent on a $300,000 home means borrowing an extra $51,000. Over a 30-year loan at 7 percent interest, that extra $51,000 costs you roughly $120,000 in additional interest and PMI combined. Your monthly payment would be about $300 higher.
However, a smaller down payment also means you keep more cash in your savings account for emergencies, home repairs, or other needs. If you have $15,000 saved and a home costs $300,000, putting down 20 percent ($60,000) is not possible. Putting down 5 percent ($15,000) lets you buy now and build equity while keeping your emergency fund intact.
The choice between a smaller and larger down payment is a trade-off: lower upfront cost versus higher long-term cost, and liquidity versus equity. There is no single right answer—it depends on your financial situation, how long you plan to stay in the home, and your comfort with debt.
Down payment assistance programs and conventional loans
Some down payment assistance programs work with conventional loans, though most are designed for first-time buyers or people with lower incomes. These programs may offer grants (money you do not repay) or second mortgages (loans you do repay) to cover part or all of your down payment. A few examples include state housing finance agencies, nonprofit lenders, and employer-sponsored programs.
If you use a down payment assistance grant, your lender may treat it differently depending on the program. Some lenders allow the full grant amount to count toward your down payment. Others require you to contribute a minimum percentage of your own money first. Ask your lender before you commit to a specific assistance program.
Your local housing finance agency or a nonprofit housing counselor can tell you which programs operate in your area and whether you meet their requirements. These services are usually free.
Comparing 3 percent, 5 percent, 10 percent, and 20 percent down
| Down Payment | Upfront Cost (on $300,000 home) | Loan Amount | PMI Required? | Approximate Monthly Payment (at 7% interest, 30 years) |
|---|---|---|---|---|
| 3% | $9,000 | $291,000 | Yes, ~$145–$365/month | $2,100–$2,400 |
| 5% | $15,000 | $285,000 | Yes, ~$140–$355/month | $2,050–$2,350 |
| 10% | $30,000 | $270,000 | Yes, ~$135–$340/month | $1,950–$2,250 |
| 20% | $60,000 | $240,000 | No | ~$1,600 |
These numbers are estimates and will vary based on your credit score, interest rate, property taxes, homeowners insurance, and HOA fees. The PMI range reflects different risk levels and lender policies. A higher credit score usually means lower PMI rates.
Steps to find out your actual minimum down payment
Contact at least three lenders and ask them directly what down payment they require for your situation. Bring your credit score (you can get a free one from annualcreditreport.com), your most recent pay stubs, your last two years of tax returns, and a list of your debts and monthly payments. This information lets a lender give you a real answer instead of a general one.
Ask each lender for a Loan Estimate, which is a standardized form that shows the interest rate, down payment requirement, monthly payment, PMI cost, and closing costs. By law, lenders must provide this within three business days of your request. Comparing three Loan Estimates side by side shows you the real cost difference between lenders and down payment amounts.
Do not assume that the lowest down payment offer is the best deal. A 3 percent down loan with a higher interest rate and PMI can cost more over time than a 5 or 10 percent down loan with a lower rate. The Loan Estimate makes this comparison clear.
Frequently Asked Questions
Can I use a gift for my down payment on a conventional loan?
Yes. The person giving you the money must sign a gift letter stating that it is a gift and not a loan you have to repay. The lender will verify the gift by asking for bank statements showing the money moved from their account to yours. Some lenders require the gift to come from a family member, while others accept gifts from anyone.
What is the difference between a conventional loan and an FHA loan?
FHA loans are backed by the Federal Housing Administration and typically allow down payments as low as 3.5 percent. Conventional loans are not government-backed. FHA loans usually have lower credit score requirements but charge mortgage insurance for the entire loan term, even after you reach 20 percent equity. Conventional loans drop PMI once you reach 20 percent equity.
If I put down 3 percent, when does PMI go away?
PMI drops off when your loan balance reaches 80 percent of the original home value, or when you refinance into a new loan. You can also request PMI removal once you reach 20 percent equity if you have made all payments on time. The timeline depends on your interest rate and how quickly you pay down the principal.
Does a larger down payment always mean a lower interest rate?
Usually, yes. Lenders see a larger down payment as lower risk, so they often offer a lower interest rate. However, the difference is usually small—maybe 0.25 to 0.5 percent. Compare actual rate quotes from multiple lenders to see the real impact on your monthly payment.
What if I do not have enough saved for even a 3 percent down payment?
Look into down payment assistance programs through your state housing finance agency, local nonprofits, or your employer. Some programs offer grants or second mortgages that can cover part or all of your down payment. A housing counselor can help you find programs in your area and understand what they require.