Can I Get A Conventional Loan With 5% Down?

A number 5 and 5 percent symbol with green letters on whiteAre you wondering if you can get a conventional loan with just 5% down? Look no further! In this comprehensive guide, we'll explore the possibilities of securing a conventional loan with a 5% down payment. While conventional loans often require a higher down payment compared to other loan types, there are options available that may allow you to qualify with a smaller down payment. Whether you're a first-time homebuyer or looking to refinance, understanding the requirements and considerations of obtaining a conventional loan with 5% down is crucial for making informed borrowing decisions. So, let's dive in and discover the potential avenues for securing a conventional loan with a 5% down payment.

Conventional Loan Requirements:

To get a conventional loan, you need a credit score of 620 or higher, a stable employment history, and cash reserves. You must also put down at least 5% of the purchase price as a down payment, unless you use one of the 3% down payment programs.

Fannie Mae Home Ready and Standard: 97%

Home Ready

Home Ready is a program for low-income borrowers to increase homeownership. It offers affordable housing solutions and allows a down payment as low as 3%. It requires a credit score of at least 620 and no minimum contribution from the borrower's funds. There is no first-time home buyer requirement, but applicants must be under 80% of the area median income in all census tracts.

Fannie Mae Standard 97

Fannie Mae Standard 97 is ideal for first-time homebuyers, requiring only a 3% down payment with financing up to 97% of the property's value. A credit score of 620 and a stable income source are necessary for qualification, along with private mortgage insurance, until the loan-to-value ratio falls below 80%. Property types are restricted to single-family homes and condos, and at least one borrower must be a first-time homebuyer with no income limit.

Benefits of a Conventional Mortgage:

Conventional loans are an excellent option for many home buyers because they offer lower interest rates than FHA loans. You'll also work with your lender to find a loan that meets your needs, rather than having to conform to strict FHA guidelines. Additionally, if you put 20% down on your home loan, you won't have to pay for PMI, which can save you a lot of money over the life of your loan. Ultimately, getting a conventional loan is the best mortgage option for many people, especially those with good credit.

5% Down Payment Options:

If you do not meet one of the 3% down payment programs, you may be able to obtain a conventional loan with only a 5% down payment.

Qualifying for a Conventional Mortgage Loan

To qualify for a conventional loan, you must meet specific credit score requirements and have a good credit history. You'll also need a debt-to-income ratio of no more than 45%, so you can't spend too much of your monthly income on your mortgage payments.

Additionally, you'll need to put down at least 3% of the home's purchase price or have less than 20% equity. Finally, your loan amount can't exceed the conforming loan limit set by Fannie Mae and Freddie Mac, which is currently the case for most of the U.S.

Conventional Loan Limits:

Fannie Mae and Freddie Mac set conventional loan limits, and they determine the maximum loan amount you can get for a conventional home loan. The conforming loan limit for most of the U.S. is currently $726,200, but it can be higher in high-cost areas. If you need a higher loan amount than the conforming loan limit allows, you may need to get a jumbo loan, which typically has stricter credit score requirements and a higher down payment.

FHA Loan vs. Conventional Loan:

When deciding between a conventional loan and an FHA loan, it's essential to consider the benefits and drawbacks of each. While FHA loans typically have lower credit score requirements and smaller down payments, they also require you to pay for mortgage insurance for the life of the loan. On the other hand, conventional loans require a higher credit score and down payment, but they don't require mortgage insurance if you put down at least 20%.

PMI (Private Mortgage Insurance):

Private mortgage insurance (PMI) is a type of insurance that protects lenders in the event that a borrower defaults on their mortgage payments. PMI is typically required for conventional loans if the down payment is less than 20% of the home's value. PMI can add to the overall cost of the mortgage and is often paid as a monthly premium. However, there are ways to avoid PMI, such as putting at least 20% down or getting a piggyback loan. The cost of PMI can vary based on factors such as the borrower's credit score, loan-to-value ratio (LTV), and loan amount.

Conventional Loans: Credit Score Requirements

When getting a conventional loan, your credit score plays a significant role. Generally, a minimum credit score of 620 is required to qualify for a conventional loan, although some lenders may have stricter requirements. A higher credit score can lead to better terms, such as a lower interest rate. Lenders will also look at your debt-to-income ratio (DTI), employment history, and credit history to determine your eligibility for a conventional loan.

Conventional Loans: Debt-to-Income Ratio

The debt-to-income ratio (DTI) is another important factor that lenders consider when evaluating a borrower's eligibility for a conventional loan. DTI is the ratio of your monthly debt payments to your gross monthly income. Typically, lenders prefer a DTI of 36% or lower, although some lenders may be more flexible. A higher DTI indicates that a borrower may have trouble making mortgage payments.

Fixed vs. Adjustable Rate Conventional Loans:

When choosing a conventional loan, borrowers can select either a fixed-rate or an adjustable-rate mortgage (ARM). A fixed-rate mortgage has an interest rate that remains the same for the entire loan term, while an ARM has an interest rate that can change over time. Fixed-rate mortgages provide stability and predictability, while ARMs can be more flexible and offer lower initial interest rates. However, ARMs can also be riskier, as the interest rate can increase significantly over time.

Mortgage Insurance Requirements:

A form of insurance called mortgage insurance shields lenders from loss if a borrower misses a payment on their mortgage. Mortgage insurance is often necessary for traditional loans if the down payment is less than 20% of the home's value. Private mortgage insurance (PMI) and government-backed mortgage insurance, such as that offered with FHA loans, are the two forms of mortgage insurance available. The loan size, loan-to-value ratio (LTV), and borrower's credit score are some examples of variables that might affect the price of mortgage insurance.

Loan Application Process for Conventional Loans:

The loan application process for a conventional loan can be complex and time-consuming. It typically involves completing a loan application and providing documentation such as proof of income, employment history, and bank statements. The lender will also order an appraisal to determine the property's value. Once the loan application is complete, the lender will review the information and determine if the borrower is eligible for a conventional loan. The borrower must sign a loan agreement and pay closing costs if approved.


In conclusion, securing a conventional loan with a 5% down payment is indeed possible, although it may require additional considerations and requirements. By exploring options such as private mortgage insurance (PMI) or lender-paid mortgage insurance (LPMI), you may find opportunities to qualify for a conventional loan with a smaller down payment. It's essential to consult with a mortgage professional to assess your specific situation and explore the available options that align with your financial goals. Keep in mind that while a smaller down payment may open doors to homeownership, it's crucial to carefully evaluate your financial readiness and consider factors such as monthly mortgage payments, interest rates, and overall affordability. With the right guidance and a clear understanding of your options, you can make informed decisions and potentially secure a conventional loan with a 5% down payment, turning your homeownership dreams into reality.