3% Down Payment Mortgage: How to Buy a Home With 3 Percent Down
Updated: October 12, 2026 • 8 min read
Written by
Bennett Leckrone
Writer / Reviewer / Expert
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Reviewed by
Jake Driscoll
Reviewer
Key Takeaways
- Several Fannie Mae and Freddie Mac conventional mortgage options allow eligible borrowers to buy a one-unit primary residence with 3% down.
- Standard 97% and HomeOne generally require at least one first-time homebuyer, while HomeReady and Home Possible instead have income limits.
- A 3% down payment reduces the upfront cash needed, but you still need to account for closing costs, PMI and the larger mortgage balance.
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Explore low down payment mortgage options.
Yes, you can buy a home with 3% down if you qualify for an eligible conventional mortgage.
The main 3 percent down mortgage options include Fannie Mae's Standard 97% LTV option and HomeReady, plus Freddie Mac's Home Possible and HomeOne programs. The programs have different income limits, first-time homebuyer rules and underwriting requirements.
Other low-down-payment options include FHA financing with 3.5% down for qualifying borrowers and VA or USDA financing with no down payment for eligible transactions.
3% Down Payment Mortgage Basics
| Loan Option | Minimum Down Payment | First-Time Buyer Requirement | Program-Specific Income Limit |
|---|---|---|---|
| Fannie Mae Standard 97% LTV | 3% | At least one borrower on a purchase generally must be a first-time homebuyer | None |
| Fannie Mae HomeReady | As low as 3% | No general first-time homebuyer requirement | Generally 80% of area median income |
| Freddie Mac Home Possible | As low as 3% | No general first-time homebuyer requirement | 80% of area median income |
| Freddie Mac HomeOne | 3% | At least one borrower on a purchase generally must be a first-time homebuyer | None |
| FHA | 3.5% for borrowers eligible for maximum financing | No | None under the standard FHA program |
| VA | 0% possible | No | None under the VA program |
| USDA Guaranteed | 0% possible | No | Household income limits apply |
These are program-level rules. Credit, qualifying income, debt, property eligibility, mortgage insurance and lender underwriting requirements still apply.
How Much Is a 3 Percent Down Payment?
A 3% down payment means you provide 3% of the purchase price and finance the remaining 97% before accounting for any permitted financed costs.
| Home Price | 3% Down Payment | Starting Mortgage Amount |
|---|---|---|
| $200,000 | $6,000 | $194,000 |
| $300,000 | $9,000 | $291,000 |
| $400,000 | $12,000 | $388,000 |
| $500,000 | $15,000 | $485,000 |
| $600,000 | $18,000 | $582,000 |
The down payment is not the same as the total amount you need to close. Your cash to close can also include lender and third-party charges, prepaid interest, homeowners insurance, property taxes and initial escrow deposits.
3% Down Conventional Loan Options
The four major conventional 3%-down options are not interchangeable. Fannie Mae and Freddie Mac impose different eligibility rules depending on the program.
| Program | First-Time Buyer Rule | Income Rule | Key 97% LTV Requirements |
|---|---|---|---|
| Fannie Mae Standard 97% | At least one borrower generally must be a first-time buyer | No program-specific limit | One-unit principal residence, fixed rate and DU underwriting |
| Fannie Mae HomeReady | Not generally required | Generally no more than 80% of AMI | 97% LTV available for an eligible one-unit principal residence |
| Freddie Mac Home Possible | Not generally required | No more than 80% of AMI | Up to 97% LTV on an eligible one-unit property |
| Freddie Mac HomeOne | At least one borrower generally must be a first-time buyer | No program-specific limit | One-unit primary residence and fixed-rate mortgage |
Fannie Mae Standard 97% LTV Option
Fannie Mae's Standard 97% LTV option permits eligible buyers to purchase a one-unit principal residence with 3% down.
For a purchase transaction, at least one borrower generally must be a first-time homebuyer. Fannie Mae generally defines a first-time homebuyer for this purpose as someone who has not had an ownership interest in a residential property during the previous three years, subject to the full Selling Guide definition.
The 97% option requires Desktop Underwriter, or DU, and a fixed-rate mortgage with a term of up to 30 years. Fannie Mae's standard 97% option does not have a program-specific income limit.
Fannie Mae does not permit high-balance financing under the Standard 97% option.
Fannie Mae's current 97% LTV guidance contains the complete eligibility requirements.
Fannie Mae HomeReady
HomeReady is Fannie Mae's income-restricted low-down-payment mortgage. Eligible borrowers can purchase a one-unit primary residence with as little as 3% down.
You do not generally have to be a first-time homebuyer. However, qualifying income is generally limited to 80% of area median income for the property location.
HomeReady also allows eligible gifts, grants and Community Seconds to provide funds for the down payment and closing costs. For a one-unit property, Fannie Mae does not generally require a minimum contribution from the borrower's own funds.
When all occupying borrowers are first-time homebuyers, at least one borrower generally must complete qualifying homeownership education.
Current eligibility and income requirements are available through Fannie Mae's HomeReady guidance.
Freddie Mac Home Possible
Home Possible is Freddie Mac's income-restricted conventional mortgage for low- and very low-income borrowers.
The program permits up to 97% LTV on eligible one-unit properties. It does not impose a general first-time homebuyer requirement, but qualifying income cannot exceed 80% of area median income.
Freddie Mac permits flexible down payment sources under Home Possible, including qualifying family gifts, employer assistance, secondary financing and sweat equity.
Home Possible can also finance eligible two- to four-unit properties, but the maximum LTV differs by property and transaction type. The 3%-down, 97% LTV option is associated with eligible one-unit transactions.
Freddie Mac's Home Possible guidance provides current program requirements and an income eligibility tool.
Freddie Mac HomeOne
HomeOne is Freddie Mac's 3%-down conventional option designed for qualified first-time homebuyers.
For a purchase, at least one borrower must generally qualify as a first-time homebuyer. Freddie Mac generally defines this as a borrower who has not had an ownership interest in a residential property during the three years before the purchase and will occupy the new property as a primary residence, subject to the complete Guide definition.
HomeOne has no program-specific borrower income or geographic limit.
The mortgage must be fixed rate and secured by an eligible one-unit primary residence. Homebuyer education is required for certain first-time homebuyer transactions.
Current requirements are available through Freddie Mac's HomeOne guidance.
Is a 3% Down Conventional Loan Only for First-Time Buyers?
No. It depends on the conventional mortgage program.
- Fannie Mae Standard 97% generally requires at least one first-time homebuyer on a purchase.
- Freddie Mac HomeOne generally requires at least one first-time homebuyer on a purchase.
- Fannie Mae HomeReady does not have a general first-time buyer requirement.
- Freddie Mac Home Possible does not have a general first-time buyer requirement.
HomeReady and Home Possible instead use income limits. In both cases, qualifying income is generally limited to 80% of AMI.
That creates a basic trade-off among the programs. A repeat buyer who satisfies the income cap may be able to use HomeReady or Home Possible, while a first-time buyer with income above the affordable-lending limits may still qualify for Standard 97% or HomeOne.
FHA Loans With 3.5% Down
An FHA loan is not a 3%-down mortgage. FHA permits a minimum required investment of 3.5% for borrowers eligible for maximum financing.
Unlike the conventional 3%-down programs, FHA mortgages are insured by the Federal Housing Administration and use FHA underwriting, mortgage insurance and property requirements.
FHA loans generally include an upfront mortgage insurance premium and an annual mortgage insurance premium. The duration of annual MIP depends on the loan's original LTV, term and applicable FHA rules.
When comparing FHA and conventional financing, consider the interest rate, mortgage insurance, total cash to close and expected cost over the period you expect to keep the mortgage.
Zero-Down Alternatives: VA and USDA Loans
VA Loans
Eligible veterans, service members and certain surviving spouses may qualify for a VA-backed purchase loan without a down payment.
VA states that no down payment is generally required when the sales price does not exceed the home's appraised value. Borrowers must also satisfy VA and lender eligibility requirements.
VA loans do not require monthly PMI or FHA-style mortgage insurance. A VA funding fee can apply unless the borrower qualifies for an exemption.
USDA Loans
The USDA Single Family Housing Guaranteed Loan Program can provide 100% financing for eligible borrowers purchasing a primary residence in an eligible rural area.
USDA currently limits household income to no more than 115% of applicable median household income. Property-location, occupancy and other program requirements also apply.
USDA Guaranteed loans include an upfront guarantee fee and an annual fee rather than conventional PMI.
What Lenders Review With 3% Down
A low down payment does not reduce the lender's need to evaluate your ability to repay the mortgage.
Credit History
The lender reviews your credit reports, scores and payment history as part of underwriting.
There is no single credit score that guarantees approval for every 3%-down conventional mortgage. Eligibility depends on the selected program, the applicable underwriting system and the complete loan file.
Income and Employment
Income used to qualify generally must be documented and meet the applicable Fannie Mae or Freddie Mac requirements for stability and continuance.
The documents required depend on the type of income. Self-employed borrowers, for example, can face different documentation requirements from salaried borrowers.
Debt-to-Income Ratio
Debt-to-income ratio, or DTI, compares qualifying monthly debt obligations with gross qualifying monthly income.
If your applicable monthly debt is $2,400 and gross qualifying income is $6,000, your DTI is 40%.
The acceptable DTI depends on the program, underwriting method, risk factors and lender requirements rather than one universal conventional maximum.
Assets and Cash to Close
The 3% down payment is only part of the money involved in a purchase.
Cash to close can also include closing costs, prepaid interest, homeowners insurance, tax and insurance escrow deposits and other transaction costs, less applicable deposits and credits.
A 3% down payment on a $400,000 home is $12,000, but the total amount needed to close can be higher.
Property Eligibility
The property must meet the requirements of the specific mortgage program.
For the 97% LTV conventional options discussed here, the 3%-down structure generally applies to an eligible one-unit principal residence. Program rules can differ for condos, manufactured homes and two- to four-unit properties.
Can Gift Funds Cover a 3% Down Payment?
Gift funds can cover some or all of the required funds for many one-unit conventional purchase transactions when the gift and donor meet Fannie Mae or Freddie Mac requirements.
Fannie Mae, for example, generally permits all required funds for a one-unit principal residence with an LTV above 80% to come from an eligible gift. HomeReady also permits gifts, grants and Community Seconds with no minimum personal contribution on eligible one-unit transactions.
The lender must document the donor, gift amount and transfer of the funds and confirm that repayment is not expected.
Seller concessions are different from gift funds. They generally offset eligible closing costs rather than satisfying the borrower's required down payment.
Can Down Payment Assistance Be Used With a 3% Down Mortgage?
Yes, certain down payment assistance and subordinate-financing programs can be paired with eligible conventional mortgages.
The assistance must comply with the requirements of the first mortgage and the assistance provider. Eligibility can depend on income, property location, purchase price, first-time buyer status and homebuyer education.
Fannie Mae permits qualifying Community Seconds with its 97% options, while Freddie Mac permits eligible Affordable Seconds with Home Possible and HomeOne.
Mortgage Insurance With 3% Down
A conventional mortgage with 3% down begins at 97% LTV and generally requires private mortgage insurance.
The cost of PMI can depend on your credit profile, LTV, loan term, property, occupancy and the mortgage insurance structure.
Under federal PMI cancellation rules that apply to many conventional mortgages, you generally can request cancellation when the scheduled principal balance reaches 80% of the home's original value if you meet the applicable conditions.
Automatic termination generally occurs when the scheduled balance reaches 78% of original value and the mortgage is current. Fannie Mae and Freddie Mac servicing rules can also provide additional cancellation paths in qualifying circumstances.
How to Compare 3% Down Mortgage Options
A lower down payment does not necessarily produce the lowest-cost mortgage.
Compare eligible options using the same home price and expected ownership period. Review:
- Minimum down payment.
- Total cash to close.
- Interest rate.
- APR.
- Monthly principal and interest.
- PMI or government-program fees.
- Income limits.
- First-time homebuyer requirements.
- Homeownership education requirements.
- Property eligibility.
- Mortgage insurance cancellation rules.
- Total expected borrowing cost.
When 3% Down May Fit Your Budget
Putting 3% down can leave more of your savings available for closing costs, repairs, moving expenses or emergency reserves.
The trade-off is a larger mortgage balance and very little initial equity. A 3% down payment starts the mortgage at 97% LTV, so relatively small changes in the home's value can have a larger effect on your equity early in ownership.
PMI also increases the monthly cost until it can be canceled or terminates under applicable rules.
When a Larger Down Payment May Make Sense
A larger down payment reduces the amount you need to borrow and can lower principal and interest costs.
It can also reduce the cost of PMI or eliminate conventional PMI when the initial LTV is 80% or lower.
The trade-off is liquidity. Money used for a larger down payment is no longer available for immediate repairs, moving expenses or emergency savings.
Bottom Line
Several conventional programs allow qualified borrowers to buy a home with 3% down, but the eligibility rules differ.
Fannie Mae Standard 97% and Freddie Mac HomeOne generally require at least one first-time homebuyer and do not impose program-specific income limits. HomeReady and Home Possible do not generally require first-time buyer status but restrict qualifying income to 80% of area median income.
The minimum down payment is only one part of the comparison. Review cash to close, PMI, interest rate, program requirements and the total amount you expect to pay over the time you plan to keep the loan.
Frequently Asked Questions
Can You Buy a Home With 3% Down?
Yes. Eligible borrowers can purchase a qualifying home with 3% down through Fannie Mae Standard 97%, HomeReady, Freddie Mac Home Possible or HomeOne.
Which Conventional Loans Allow 3% Down?
The major options include Fannie Mae Standard 97% and HomeReady, along with Freddie Mac Home Possible and HomeOne. Each has different first-time buyer, income and underwriting rules.
Is a 3% Down Conventional Loan Only for First-Time Homebuyers?
No. Fannie Mae Standard 97% and Freddie Mac HomeOne generally require at least one first-time homebuyer for a purchase. HomeReady and Home Possible do not have a general first-time buyer requirement.
What Is the Income Limit for a 3% Down Mortgage?
It depends on the program. HomeReady and Home Possible generally limit qualifying income to 80% of area median income. Fannie Mae Standard 97% and Freddie Mac HomeOne do not have program-specific income limits.
How Much Is 3% Down on a $300,000 House?
Three percent of $300,000 is $9,000. Closing costs and prepaid expenses can increase the total cash needed to complete the purchase.
How Much Is 3% Down on a $400,000 House?
Three percent of $400,000 is $12,000. The starting mortgage amount would be $388,000 before accounting for other permitted financing adjustments.
Will You Pay PMI With 3% Down?
Generally, yes. A conventional mortgage with 3% down begins at 97% LTV, which generally requires private mortgage insurance.
Is FHA a 3% Down Mortgage?
No. FHA generally permits a minimum required investment of 3.5% for borrowers eligible for maximum financing.
Can Gift Funds Cover the Entire 3% Down Payment?
They can in many eligible one-unit conventional transactions. The donor and transfer must meet the applicable Fannie Mae or Freddie Mac gift-fund requirements and be properly documented.
Can You Use Down Payment Assistance With a 3% Down Loan?
Yes, when the assistance and any subordinate financing meet the requirements of the first-mortgage program. Income, location, purchase-price and homebuyer education rules can also apply.
Is It Better to Put 3% or 20% Down?
Putting 3% down preserves more cash but produces a larger mortgage and generally requires PMI. Putting 20% down reduces the mortgage balance and generally avoids conventional PMI but uses substantially more cash upfront.
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