Conventional loans typically require 3% down, but lenders often prefer 5% to 20%
A conventional loan is a mortgage that is not backed by a government agency like the FHA or VA. The minimum down payment is 3% of the home's purchase price, set by Fannie Mae and Freddie Mac, the two largest mortgage companies in the United States. However, the actual minimum you will encounter depends on your credit score, debt-to-income ratio, and the specific lender you work with.
If you put down less than 20%, you will pay private mortgage insurance (PMI)—an extra monthly cost that protects the lender if you stop paying. This cost typically ranges from 0.5% to 1% of your loan amount per year, added to your monthly payment. The lower your down payment, the higher your PMI rate usually is.
Most lenders will not actually offer a 3% down conventional loan to every borrower. Many require 5% or 10% minimum, and some require 15% or 20%. Your credit score, employment history, and savings reserves all factor into what a lender will accept. A lender may also require a larger down payment if you are self-employed, have recent late payments, or carry high debt.
Key Takeaways
- The legal minimum for a conventional loan is 3%, but most lenders require 5% to 10% in practice.
- Any down payment below 20% triggers private mortgage insurance, which adds to your monthly payment until you reach 20% equity.
- Your credit score, debt level, and employment type determine whether a lender will accept a 3% down payment or require more.
- Putting down 5% instead of 3% may lower your PMI rate and make your process stronger with lenders.
- The total cost of a lower down payment includes both PMI and a higher interest rate, which compounds over 30 years.
How the 3% minimum works in practice
Fannie Mae and Freddie Mac set 3% as the floor for conventional loans, meaning lenders are allowed to offer mortgages at that level. In reality, most lenders have their own internal minimums that sit higher. A bank may advertise "3% down" but only offer it to borrowers with a credit score above 740, no late payments in the past two years, and a debt-to-income ratio below 43%.
If you fall short of those benchmarks, the lender will either decline you or require a larger down payment. Some lenders use 5% as their standard minimum and only go to 3% for their best-may have access to borrowers. Others have tiered systems: 3% for excellent credit, 5% for good credit, 10% for fair credit.
The lender also considers your cash reserves—how much money you have left after closing. If you put down 3% and have little savings remaining, a lender may see you as a higher risk and either deny the loan or require 5% or 10% down instead.
What private mortgage insurance costs and when it ends
PMI is not a one-time fee. It is an ongoing monthly charge that stays on your loan until you have paid down the principal to 80% of the home's original purchase price. On a $300,000 home with 3% down ($9,000), you owe $291,000. You will pay PMI until your loan balance drops to $240,000.
The cost varies by lender and your credit profile. A borrower with a 750 credit score putting down 3% might pay 0.55% annually, or about $160 per month on a $350,000 loan. A borrower with a 680 credit score putting down 3% might pay 1.25% annually, or about $365 per month on the same loan. Over 10 years, that difference is $24,600.
PMI does not build equity. It is pure insurance cost. Once you reach 80% loan-to-value (LTV), you can request removal. Some loans remove it automatically; others require you to ask. Check your loan documents to see which applies to yours.
Down payment size and interest rate
A larger down payment typically lowers your interest rate. A borrower putting down 3% might receive a rate of 6.75%, while the same borrower putting down 10% might receive 6.50%. That 0.25% difference costs thousands over 30 years.
Lenders price in the risk of a low down payment. The less skin you have in the game, the more likely you are to walk away if the home value drops. Interest rates reflect that risk. A 5% down payment usually sits between the 3% and 10% rates, offering a middle ground.
When comparing loan offers, always look at the total cost: down payment amount, interest rate, PMI cost, and closing costs combined. A 5% down payment with a lower rate may cost less over time than 3% down with a higher rate and steeper PMI.
Credit score and down payment requirements
Your credit score is the single biggest factor in whether a lender will accept 3% down. Most lenders require a minimum score of 620 to 640 for conventional loans, but 3% down typically requires 700 or higher. Scores between 680 and 700 usually trigger a 5% minimum. Scores below 680 may require 10% or more.
A late payment, collection account, or bankruptcy within the past two years will push you toward a higher down payment requirement, even with a decent credit score. Lenders view recent negative marks as a stronger predictor of default than an older blemish.
If your credit score is below 700, you have two paths: wait and rebuild your score, or save for a larger down payment. Raising your score by 30 points can lower your rate by 0.25% to 0.5%, which often saves more money than the extra down payment costs.
Debt-to-income ratio and down payment
Your debt-to-income ratio (DTI) is the percentage of your gross monthly income that goes to debt payments. Most lenders cap this at 43% to 50%, depending on the loan type and your credit profile. A higher DTI can force a larger down payment requirement.
If you earn $5,000 per month and already pay $1,500 in car loans, credit cards, and student loans, your DTI is 30%. Adding a $1,500 mortgage payment would bring it to 60%, which exceeds most lender limits. To may have access to, you would either need to pay down other debts, increase your income, or put down more money to lower the monthly mortgage payment.
Some lenders will accept a 3% down payment at 50% DTI if your credit score is strong and you have cash reserves. Others will not go above 43% DTI regardless of down payment size. Ask the lender about their DTI limits before you start the process.
Comparing 3% down to other down payment levels
| Down Payment | Loan Amount (on $300,000 home) | PMI Required | Typical Credit Score Needed | Typical Lender Acceptance |
|---|---|---|---|---|
| 3% | $291,000 | Yes, 0.5–1.25% annually | 700+ | Limited; best-may have access to borrowers only |
| 5% | $285,000 | Yes, 0.4–1.0% annually | 680+ | Common; most lenders offer this |
| 10% | $270,000 | Yes, 0.3–0.8% annually | 660+ | Widely available; lower risk tier |
| 20% | $240,000 | No PMI | 620+ | No PMI; best rates available |
When a larger down payment makes financial sense
Putting down more than 3% often saves money, even if you have to delay your purchase. The math depends on your specific situation: how long you plan to stay in the home, your credit score, and current interest rates.
If you can reach 5% down instead of 3%, your PMI rate typically drops by 0.1% to 0.3% annually. On a $300,000 loan, that is $300 to $900 per year in savings. If you plan to stay in the home for 10 years, that is $3,000 to $9,000 saved, plus a lower interest rate. The trade-off is waiting longer to buy.
If you can reach 20% down, you eliminate PMI entirely and receive the best interest rates available. However, saving an extra $30,000 to $60,000 may take years. Whether that wait is worth it depends on home price trends in your area, your current rent, and your personal timeline.
Frequently Asked Questions
Can I use a gift for my down payment?
Yes. Most lenders allow down payment gifts from family members, though you will need a signed letter from the gift-giver stating it is a gift, not a loan. Some lenders require you to contribute at least 1% to 3% of the down payment from your own funds, even if the rest is a gift. Ask your lender about their gift policy before you accept money.
What happens if I put down less than 3%?
Conventional loans do not allow down payments below 3%. If you cannot save 3%, you would need to look at FHA loans (which allow 3.5% down) or state or local first-time homebuyer programs. These have different rules, rates, and insurance costs.
Does PMI ever go away automatically?
It depends on your loan. Some loans remove PMI automatically once you reach 80% LTV. Others require you to request removal in writing. Check your loan documents or call your servicer to find out which applies to you. Automatic removal usually happens around year 11 on a 30-year loan, assuming you make on-time payments.
Will a larger down payment lower my interest rate?
Usually yes, but the amount varies by lender and market conditions. A 5% down payment typically lowers your rate by 0.1% to 0.25% compared to 3% down. A 10% down payment may lower it another 0.1% to 0.2%. Over 30 years, even 0.1% saves thousands in interest.
Can I get a conventional loan with a 3% down payment and a 620 credit score?
Unlikely. Most lenders require 700+ for 3% down. With a 620 score, you would need to either raise your score, save for a 10% to 20% down payment, or explore FHA loans, which have different credit and down payment rules. Talk to multiple lenders—requirements vary.