Yes, you can buy a home with 3% down if you meet the requirements for an eligible conventional mortgage program.
Options include Fannie Mae’s standard 97% loan-to-value mortgage and HomeReady, along with Freddie Mac’s Home Possible and HomeOne programs. FHA requires at least 3.5% down for many qualified borrowers, while eligible VA and USDA borrowers can obtain 100% financing.
Buying a Home With 3% Down Basics
| Loan Option |
Minimum Down Payment |
First-Time Buyer Requirement |
Income Limit |
| Fannie Mae Standard 97% LTV |
3% |
At least one borrower generally must be a first-time homebuyer for a purchase |
No program-specific income limit |
| 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 |
Generally 80% of area median income |
| Freddie Mac HomeOne |
3% |
At least one borrower generally must be a first-time homebuyer for a purchase |
No program-specific income limit |
| FHA |
3.5% for borrowers who meet applicable FHA requirements |
No |
No FHA program-specific income limit |
| VA |
No down payment generally required for an eligible transaction |
No |
No VA program-specific income limit |
| USDA Guaranteed |
No down payment generally required |
No |
Household income limits apply |
The table summarizes major differences. Each loan also has credit, income, property, occupancy, underwriting and mortgage-insurance or guarantee-fee requirements.
How a 3% Down Payment Works
A 3% down payment means you contribute 3% of the home’s purchase price and finance the remaining 97%, before accounting for any financed fees.
| Purchase Price |
3% Down Payment |
Starting Loan Amount |
| $300,000 |
$9,000 |
$291,000 |
| $400,000 |
$12,000 |
$388,000 |
| $500,000 |
$15,000 |
$485,000 |
The down payment does not include every upfront expense. Your cash to close can also include lender and third-party closing costs, prepaid interest, homeowners insurance, property taxes and initial escrow deposits.
Conventional 3% Down Loan Options
Conventional mortgages are not insured or guaranteed by the FHA, the VA or the USDA. Fannie Mae and Freddie Mac each provide options that allow eligible borrowers to finance up to 97% of a one-unit primary residence.
Fannie Mae Standard 97% LTV Option
Fannie Mae’s standard 97% loan-to-value option, commonly called Conventional 97, permits qualified borrowers to purchase an eligible one-unit principal residence with 3% down.
Fannie Mae’s 97% LTV guidance states that Desktop Underwriter approval is required. For a standard purchase transaction, at least one borrower generally must be a first-time homebuyer.
For this purpose, a first-time homebuyer generally has not had an ownership interest in a principal residence during the three years before the new purchase.
The standard option has no program-specific income limit. Private mortgage insurance is generally required because the initial LTV exceeds 80%.
Fannie Mae HomeReady
HomeReady is a Fannie Mae affordable-lending mortgage that permits a down payment as low as 3% on an eligible one-unit primary residence.
The borrower is not generally required to be a first-time homebuyer. However, total qualifying income generally cannot exceed 80% of the area median income for the property’s location.
HomeReady can permit eligible gifts, grants and subordinate financing toward the down payment and closing costs. Homeownership education can be required based on the borrowers and transaction.
Freddie Mac Home Possible
Home Possible is a Freddie Mac conventional mortgage that permits up to 97% LTV on an eligible one-unit primary residence.
The borrower is not generally required to be a first-time homebuyer. Qualifying income is limited to 80% of the area median income for the property’s location.
Home Possible can permit eligible gifts, grants and Freddie Mac Affordable Seconds toward required funds. Its underwriting, education and mortgage-insurance requirements differ from those of Fannie Mae HomeReady.
Freddie Mac HomeOne
HomeOne is a Freddie Mac 3%-down option for qualified first-time homebuyers.
At least one borrower generally must qualify as a first-time homebuyer for a purchase transaction. HomeOne does not impose a program-specific income or geographic limit.
The property generally must be a one-unit primary residence, and the mortgage must satisfy Freddie Mac and lender underwriting requirements.
Do You Need to Be a First-Time Homebuyer?
Not every 3%-down conventional program requires first-time homebuyer status.
- Fannie Mae’s standard 97% LTV purchase option generally requires at least one first-time homebuyer.
- Freddie Mac HomeOne generally requires at least one first-time homebuyer.
- HomeReady does not have a general first-time homebuyer requirement.
- Home Possible does not have a general first-time homebuyer requirement.
FHA, VA and USDA purchase programs also do not generally require first-time homebuyer status.
FHA Loans With 3.5% Down
An FHA loan is not a 3%-down mortgage. The minimum required investment is generally 3.5% for a borrower who satisfies the applicable FHA credit requirements.
HUD states that FHA down payments can be as low as 3.5%. The required investment is generally based on the lesser of the property’s adjusted value or purchase price under current FHA policy.
FHA loans generally include:
- An upfront mortgage insurance premium
- An annual mortgage insurance premium, usually collected monthly
- FHA appraisal and property requirements
- Primary-residence occupancy requirements
- Applicable county loan limits
Compare FHA and conventional loans using the interest rate, mortgage insurance, cash to close and total cost rather than only the minimum down payment.
VA Loans With No Down Payment
Eligible service members, veterans and certain surviving spouses can use a VA-backed purchase loan.
VA explains that its purchase loan can be used without a down payment when the transaction meets program and lender requirements.
A down payment can still be required when:
- The purchase price exceeds the property’s VA reasonable value
- The borrower does not have enough available entitlement for the requested loan
- The lender imposes a down-payment requirement
VA loans do not require monthly private mortgage insurance. A one-time VA funding fee can apply, although qualifying borrowers are exempt.
Review VA loan down-payment requirements for additional examples.
USDA Loans With No Down Payment
The USDA Section 502 Guaranteed Loan Program provides 100% financing for eligible low- and moderate-income households purchasing an eligible primary residence in a qualifying rural area.
USDA Rural Development states that the program supports adequate, modest, decent, safe and sanitary homes used as the borrower’s primary residence.
USDA eligibility depends on:
- Household income
- Property location
- Primary-residence occupancy
- Property eligibility
- Credit and repayment requirements
- Lender and USDA approval
A USDA Guaranteed loan generally includes an upfront guarantee fee and an annual fee. Review USDA vs. conventional loans when comparing the full cost.
What Lenders Review With 3% Down
A 3% down payment does not reduce the lender’s obligation to evaluate the application and property.
The review generally includes:
- Credit history
- Qualifying income
- Employment or income continuity
- Monthly debt obligations
- Assets and funds to close
- Property value and eligibility
- Occupancy
- Mortgage insurance or guarantee requirements
Credit History
The lender reviews credit reports, scores, payment history, revolving balances, delinquencies, collections, bankruptcies and other credit events.
There is no credit score that guarantees approval for every 3%-down loan. The applicable underwriting system, loan program, property and lender requirements determine eligibility.
Income and Employment
The lender must document qualifying income that appears stable and likely to continue.
Required documents can include pay stubs, W-2 forms, tax returns, bank statements, award letters and employment verification. Self-employed borrowers can be asked for personal and business tax returns, financial statements and evidence that the business remains active.
Debt-to-Income Ratio
Debt-to-income ratio compares applicable monthly debt payments with gross monthly qualifying income.
For example, $2,400 in monthly debt divided by $6,000 in gross monthly income produces a 40% DTI:
$2,400 ÷ $6,000 = 40%
The maximum acceptable DTI depends on the loan program, automated underwriting result and full application.
Assets and Cash to Close
Cash to close can include:
- Down payment
- Lender fees
- Appraisal and other third-party charges
- Title and recording costs
- Prepaid interest
- Homeowners insurance
- Property-tax and insurance escrow deposits
- Any required reserves
A 3% down payment on a $400,000 home is $12,000, but the total cash needed will generally be higher unless credits, assistance or permitted financing cover other expenses.
Property Eligibility
The home must satisfy the selected loan program’s occupancy, appraisal, condition and property-type requirements.
For example:
- Fannie Mae and Freddie Mac 3%-down options generally require a one-unit primary residence.
- FHA requires an eligible primary residence that meets HUD appraisal and property requirements.
- VA requires eligible borrower occupancy and a property meeting VA requirements.
- USDA requires an eligible primary residence in a qualifying rural area.
Can Gift Funds Cover the 3% Down Payment?
Eligible gift funds can cover some or all of the down payment under many low-down-payment programs.
The lender generally verifies:
- The donor’s eligibility
- The amount of the gift
- The source and transfer of funds
- That repayment is not expected
- That the gift satisfies the selected program’s requirements
Gift funds are separate from seller concessions. Seller concessions are generally used for eligible closing costs rather than the borrower’s required down payment.
Can Down Payment Assistance Be Used?
Down payment assistance can be combined with some 3%-down mortgages when the assistance satisfies the first-mortgage program and lender requirements.
Assistance can be structured as:
- A grant
- A forgivable subordinate loan
- A deferred-payment subordinate loan
- A repayable second mortgage
- Employer assistance
- A matched-savings program
Eligibility can depend on income, purchase price, property location, first-time buyer status and homebuyer education.
Mortgage Insurance With 3% Down
Conventional mortgages with an initial LTV above 80% generally require private mortgage insurance unless another permitted credit enhancement applies.
The CFPB explains that PMI may be required when a conventional mortgage is obtained with less than 20% down.
The PMI cost can depend on:
- Credit profile
- Loan-to-value ratio
- Mortgage term
- Property and occupancy
- Coverage requirements
- Mortgage insurance provider
PMI protects the mortgage holder against part of the loss if the borrower defaults. It does not protect the borrower from foreclosure or other consequences of missed payments.
When Can PMI Be Canceled?
The CFPB explains that a borrower generally has the right to request PMI cancellation when the scheduled principal balance reaches 80% of the home’s original value.
Applicable conditions can include:
- A written cancellation request
- Current payments
- A satisfactory payment history
- No disqualifying junior liens
- Evidence that the property has not declined below its original value when requested
PMI generally terminates automatically when the scheduled principal balance reaches 78% of the original value if the mortgage is current and the loan is covered by the Homeowners Protection Act.
PMI vs. FHA Mortgage Insurance
Conventional PMI and FHA mortgage insurance follow different rules.
| Feature |
Conventional PMI |
FHA Mortgage Insurance |
| Loan type |
Conventional mortgage |
FHA-insured mortgage |
| Upfront charge |
Depends on the selected PMI structure |
Upfront mortgage insurance premium generally applies |
| Ongoing charge |
Can be charged monthly or through another permitted structure |
Annual mortgage insurance premium generally applies and is commonly paid monthly |
| Ending the charge |
Federal cancellation and termination rights can apply |
Duration depends on the original LTV, term and FHA rules |
Review FHA mortgage insurance removal for the rules applying to different FHA loans.
How to Compare 3% Down Mortgage Options
Compare each eligible mortgage using the same purchase price and expected ownership period.
Review:
- Minimum down payment
- Total cash to close
- Interest rate
- Annual percentage rate
- Monthly principal and interest
- PMI, FHA MIP or USDA guarantee fees
- VA funding fee, when applicable
- Closing costs and discount points
- Income limits
- First-time homebuyer rules
- Property and location requirements
- Mortgage-insurance cancellation rules
- Total cost over the period you expect to keep the loan
The mortgage requiring the least money down can still have a higher monthly or long-term cost.
When 3% Down May Fit Your Budget
A 3% down payment may fit when:
- You satisfy the selected program’s requirements
- You have enough cash for the down payment and remaining closing expenses
- The complete monthly housing payment fits your budget
- You retain adequate emergency savings after closing
- The mortgage-insurance cost is acceptable
- You understand how little initial equity the transaction creates
A 3% down payment creates a 97% starting LTV. Small changes in property value can therefore have a larger effect on your equity during the early years of the loan.
When a Larger Down Payment May Fit Better
A larger down payment can:
- Reduce the loan amount
- Lower the principal-and-interest payment
- Reduce the PMI premium
- Improve loan pricing in some transactions
- Create more initial equity
- Eliminate conventional PMI at 20% down
Using more cash for the down payment also leaves less available for closing costs, repairs, moving expenses and emergency savings.
Bottom Line
Qualified borrowers can buy a home with 3% down through Fannie Mae’s standard 97% LTV option, HomeReady, Freddie Mac Home Possible or HomeOne.
The programs differ in their first-time homebuyer and income rules. FHA requires at least 3.5% down for many borrowers, while VA and USDA can provide no-down-payment financing for eligible transactions.
Compare the complete monthly payment, cash to close, mortgage insurance, program fees and long-term cost before selecting a low-down-payment mortgage.
FAQ
Can You Buy a Home With 3% Down?
Yes. Fannie Mae and Freddie Mac offer several conventional mortgage options that permit eligible borrowers to purchase a one-unit primary residence with 3% down.
Which Mortgage Programs Allow 3% Down?
Options include Fannie Mae’s standard 97% LTV mortgage and HomeReady, along with Freddie Mac Home Possible and HomeOne.
Do You Need to Be a First-Time Homebuyer to Put 3% Down?
Not always. The standard Fannie Mae 97% LTV option and Freddie Mac HomeOne generally require at least one first-time homebuyer. HomeReady and Home Possible do not impose a general first-time homebuyer requirement.
What Is the Income Limit for a 3% Down Loan?
The standard Fannie Mae 97% LTV option and Freddie Mac HomeOne do not have program-specific income limits. HomeReady and Home Possible generally limit qualifying income to 80% of the area median income for the property’s location.
Will You Pay PMI With 3% Down?
Generally, yes. A conventional loan with 3% down begins at 97% LTV, and private mortgage insurance is generally required above 80% LTV.
Is FHA a 3% Down Loan?
No. FHA generally requires a minimum investment of 3.5% for borrowers who meet the applicable FHA requirements.
Can Gift Funds Cover a 3% Down Payment?
Eligible gift funds can cover some or all of the required down payment under many conventional low-down-payment programs. The donor, transfer and documentation must satisfy program and lender requirements.
Can You Use Down Payment Assistance With a 3% Down Loan?
Yes, when the assistance program and subordinate financing satisfy the first mortgage’s requirements. Income, property, purchase-price and first-time buyer limits can apply.
How Much Is 3% Down on a $400,000 Home?
A 3% down payment on a $400,000 purchase is $12,000. Closing costs, prepaid expenses and reserves can increase the total cash needed.
Is It Better to Put 3% or 20% Down?
A 3% down payment requires less cash but generally results in a larger mortgage and PMI. A 20% down payment reduces the loan amount and generally avoids conventional PMI. The appropriate amount depends on your cash reserves, monthly budget and total loan cost.
What Does Cash to Close Mean?
Cash to close is the total amount due from the borrower at closing. It can include the down payment, closing costs, prepaid interest, insurance premiums, tax deposits and other required funds.
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