Conventional Mortgages: What is the Minimum Down Payment?

There are a few loans that only require a 3% down payment. Which one is the best?

New home buyers holding a home sweet home signFor a conventional loan, the minimum down payment is usually 5% of the purchase price. However, the Federal National Mortgage Association (Fannie Mae) and it’s competitor, the Federal National Mortgage Corporation (Freddie Mac) provide specialty loans to first time home buyers that only require a 3% down payment.

With a low down payment, home buyers are able to afford a mortgage and realize their American dream of owning their first home.

In contrast to government-backed mortgages, conventional home loans do not need a funding fee, which is either included with the loan or paid in cash at settlement. There is mortgage insurance (PMI) with conventional loans with down payments less than 20%, however, the mortgage insurance will go away after the loan is paid down to 78% or 80% if requested by the borrower.

Conventional 97 Program

Applicants for the Conventional 97 loan must be first time home buyers. A first-time house buyer is someone who has not owned a home in the preceding three years. (see below).

  • 1-unit principal residence, including eligible condos, co-ops, PUDs, and MH Advantage®
  • There are no income limits with the Conventional 97 loan
  • Mortgage insurance is required
  • If all occupied borrowers are first-time home purchasers, then at least one borrower must take homebuyer education, regardless of the product selected.

Conventional 97 Refinance Option

Homeowners can refinance their current mortgage with the Conventional 97 loan provided that the existing mortgage is owned by Fannie Mae.

In addition to the Conventional 97 home loan program, Fannie Mae offers the HomeReady mortgage program.

HomeReady Loan Program

The HomeReady loan program is similar to the Conventional 97 loan with a few exceptions.

  • There is no first-time home buyer requirement, but the
  • Applicants income must be at 80% or lower than the median area income.

HomeReady Refinance

The HomeReady program may be used to refinance the current mortgage, provided that the existing loan is owned or guaranteed by Fannie Mae.

The Federal Home Loan Mortgage Corporation

Nice suburban homeThe Federal Home Loan Mortgage Corporation, also known as Freddie Mac is a competitor of Fannie Mae. And like Fannie Mae, Freddie Mac also offers conventional loans.

Home Possible by Freddie Mac

The Home Possible loan program is a 3% down payment program created for the first time home buyer. Home Possible is a comparable program to Fannie Mae's HomeReady program.

Eligible property types include 1-4 units, planned-unit developments, condos and manufactured homes are eligible with certain restrictions.

There are also extra criteria for homes with 2-4 units. To qualify for a 2-4 unit home, you must have a down payment of at least 5%, with at least 3% coming from your own assets.

Home Possible mortgages are offered to all qualifying borrowers earning less than 80% of the region median income (AMI).

Non-occupying cosigners are permitted, however, the non-occupying borrower's income, when added with the primary borrower must be less than 80% of the area median income.

Mortgage insurance is required.

But what if I am not a first time home buyer or my income is greater that 80% of the area median income?

Borrowers who do not meet the requirements of the Conventional 97, HomeReady or the Home Possible loan programs will need a 5% down payment for a purchase mortgage.

Who is a first time home buyer?

The US Department of Housing and Urban Development (HUD) set criteria to assist lenders in identifying first-time homeowners for loan programs. A first-time homebuyer, as defined by HUD, is a person who satisfies any of the following criteria:

  1. A person who has not owned a principal residence for the preceding three years.
  2. Couples are considered first-time homebuyers if one spouse is/was a homeowner while the other has never bought a house.
  3. A single parent who has never purchased a house before is termed a first-time purchaser.
  4. A first-time homeowner is someone who is a displaced homemaker (has worked only in the home for a considerable number of years providing unpaid domestic services for family members) and has only owned a property with their spouse.
  5. A person who has possessed just a primary dwelling that has not been firmly fastened to a permanent foundation in line with statutory rules (such as a mobile home).
  6. A person who has solely held a property that violates state, municipal, or model building regulations and cannot be brought into conformity at a cost less than the cost of erecting a permanent construction.


In conclusion, a conventional mortgage is a great option for those looking to purchase a home with a lower down payment. With a minimum down payment of just 3%, it's a more affordable option than many other types of mortgages. If you're interested in learning more about conventional mortgages, be sure to contact a lender today.