Conventional loans start at 3 percent down, but that floor comes with conditions
The lowest down payment for a conventional loan is 3 percent of the purchase price. This is the minimum set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy most conventional mortgages from lenders. A lender can choose to require more — many require 5 or 10 percent — but cannot legally go below 3 percent and still call the loan conventional.
The catch is that 3 percent down triggers mortgage insurance, which is a monthly fee added to your payment. This insurance protects the lender if you stop paying, not you. The lower your down payment, the higher the insurance premium. At 3 percent down, you are paying the maximum insurance cost for a conventional loan. That cost stays on your loan until you reach 20 percent equity in the home — which takes years, even as you make payments.
The 3 percent minimum also comes with stricter requirements than larger down payments. Your credit score usually needs to be at least 620, though many lenders want 640 or higher. Your debt-to-income ratio — the percentage of your monthly income that goes to debt payments — typically cannot exceed 43 percent. Some lenders will go to 50 percent, but that is less common. You will also need to document your income, assets, and employment history more thoroughly than a borrower putting 10 or 20 percent down.
Key Takeaways
- The minimum down payment for a conventional loan is 3 percent of the purchase price, set by Fannie Mae and Freddie Mac.
- Putting down 3 percent triggers mortgage insurance that stays on your loan until you own at least 20 percent of the home, adding hundreds of dollars per month to your payment.
- Lenders can require more than 3 percent down, and many require 5 or 10 percent instead.
- A 3 percent down payment usually requires a credit score of at least 620 and a debt-to-income ratio below 43 percent.
- The total cost of a 3 percent down loan — including insurance — is often higher than a loan with a larger down payment, even though the upfront cash is lower.
How mortgage insurance works at 3 percent down
When you put down less than 20 percent, the lender requires private mortgage insurance, or PMI. This is not homeowners insurance — it is insurance that pays the lender's loss if you default. You pay the premium, but you do not benefit from it. The premium is calculated as a percentage of the loan amount and is usually rolled into your monthly mortgage payment.
At 3 percent down on a $300,000 home, you are borrowing $291,000. The PMI premium on that loan typically runs between 0.55 and 1.86 percent per year, depending on your credit score, the loan term, and the lender's risk assessment. On a $291,000 loan, that translates to roughly $160 to $540 per month in insurance alone. This is in addition to your principal, interest, property taxes, and homeowners insurance.
PMI stays on the loan until you reach 20 percent equity — the point at which you have paid down the loan to $240,000 on that same $300,000 home. Depending on your interest rate and loan term, this can take 10 to 15 years. Once you hit 20 percent equity, you can request that the lender remove PMI, but you have to ask. Some lenders will remove it automatically once you reach 22 percent equity, but that is not required.
When 3 percent down makes financial sense
A 3 percent down payment is most useful when you have limited savings but a stable income and good credit. If you have been saving for a down payment and are close to 5 or 10 percent, it usually makes more sense to wait — the difference in PMI cost between 3 and 5 percent down is substantial over time. But if you are renting and paying rent that is equal to or higher than a mortgage payment with PMI, buying sooner with 3 percent down can be the better financial move.
The math depends on your specific situation: your credit score, the interest rate you may have access to for, the local housing market, and how long you plan to stay in the home. A mortgage professional can run the numbers for your circumstances. The key is understanding that the lowest down payment is not always the lowest total cost.
Down payment requirements vary by lender
While 3 percent is the legal floor for conventional loans, individual lenders set their own minimums. Some lenders will offer 3 percent down loans, but many have moved to 5 or 10 percent minimums, especially after 2008. Lenders cite tighter risk management and higher operational costs as reasons for the higher floors.
Credit unions and smaller regional lenders are sometimes more willing to offer 3 percent down loans than large national banks. However, their interest rates or fees may be higher to offset the additional risk. Shopping with multiple lenders is the only way to know what minimums and rates are available to you. A mortgage broker can search multiple lenders at once, though they typically work with a subset of the market, not all lenders.
How 3 percent down compares to other loan types
Federal Housing Administration loans, or FHA loans, allow down payments as low as 3.5 percent and are often easier to may have access to for than conventional loans with 3 percent down. However, FHA loans carry mortgage insurance that is both higher and longer-lasting than conventional PMI. FHA insurance stays on the loan for the full 30-year term if you put down less than 10 percent, making the total cost significantly higher over time.
VA loans and USDA loans, available to military members and rural homebuyers respectively, allow zero down payment. If you are not may be able to access for either program, a conventional 3 percent down loan is the lowest down payment option in the conventional market. Some state and local first-time homebuyer programs offer down payment information that can reduce your out-of-pocket cost, though these programs vary widely by location and have their own requirements.
What you need to bring to a lender for a 3 percent down loan
Lenders underwriting a 3 percent down loan typically require more documentation than for larger down payments. You will need recent pay stubs, usually the last two months; W-2s or tax returns for the last two years; bank statements showing your down payment savings; and a letter of employment confirming your job and income. If you received a gift for part of the down payment, you will need a gift letter from the donor stating that the money does not need to be repaid.
You will also need a credit report, which the lender pulls directly. Your credit score will be a major factor in whether you are approved and what interest rate you receive. Lenders also verify employment by contacting your employer directly, usually a few days before closing. Any job change, large new debt, or drop in credit score between your initial process and closing can delay or derail the loan.
Frequently Asked Questions
Can I put down less than 3 percent on a conventional loan?
No. Three percent is the legal minimum for conventional loans set by Fannie Mae and Freddie Mac. If a lender offers less, it is not a conventional loan — it may be an FHA loan, a portfolio loan, or another type. Conventional loans cannot go below 3 percent.
Does mortgage insurance ever go away?
Yes, but only once you reach 20 percent equity in the home. At that point, you can request that the lender remove PMI. Some lenders remove it automatically at 22 percent equity, but you should not count on that — contact your lender once you hit 20 percent to ask for removal.
Is it better to put down 3 percent or wait and save for 10 percent?
It depends on your rent, your interest rate, and how long you plan to stay. If your rent is high and you have stable income, buying sooner with 3 percent down and PMI may cost less over five years than renting and saving. A mortgage professional can compare the two scenarios for your specific numbers.
What credit score do I need for a 3 percent down conventional loan?
Most lenders require at least 620, though many prefer 640 or higher. The higher your score, the lower your interest rate and PMI premium. Scores below 620 typically disqualify you from conventional loans entirely; FHA loans are the alternative for lower credit scores.
Can I use a gift for my 3 percent down payment?
Yes, but the lender will require a gift letter from the donor stating that the money is a gift and does not need to be repaid. The donor does not need to be a family member, but the lender will verify the source of the funds to may support you did not borrow the money.