3% Down Payment Mortgages for First-Time Home Buyers

With home prices rising and mortgage rates more than doubling since 2021, saving for a down payment is more challenging than ever before.

But buying sooner can help you avoid rising costs, and you don’t need 20% down to do it. If you have good credit and a steady income, you might qualify for a 3% down payment mortgage program. If you have lower credit, an FHA loan with 3.5% down offers even more flexibility.

Ready to explore your 3% down mortgage options? Get started here.

In this article (Skip to…)

• 3% down payment mortgages
• Pros and cons of 3% down payment loans
• Other low and no down payment mortgage options
• FAQ

What is a 3% down payment mortgage loan?

With a 3% down mortgage, you can buy a home by putting down just 3% of the purchase price. If you’re considering a $400,000 home, that means you’ll need a $12,000 down payment instead of $80,000 for a traditional 20% down payment.

Most 3% down home loans come from first-time home-buyer programs backed by Fannie Mae or Freddie Mac, and some banks and lenders also offer their own. Eligibility requirements vary by loan program, but you’ll likely need a specific credit score, complete a homebuyer education course, and pay for private mortgage insurance (PMI).

3% down payment mortgage loans

If saving for a large down payment has been holding you back, a 3% down mortgage could help you buy a home sooner. These programs are designed to lower the upfront cost of buying, especially for first-time buyers. While each one has unique requirements, they all require private mortgage insurance, which you can typically remove once you reach 20% equity. Let’s take a closer look at each 3% home loan.

1. Conventional 97

The Conventional 97 is a 3% down payment mortgage backed by Fannie Mae. It allows you to purchase a home with only 3% down, provided the loan-to-value (LTV) ratio—your loan amount compared to the home’s price—remains at 97%. Additionally, you don’t need to use your savings for the down payment either. You can use a gift from a family member or down payment assistance as an alternative. Plus, unlike some other 3% down home loans on this list, you won’t have to meet income limits.

To qualify for a Conventional 97, you’ll need to meet these eligibility requirements:

• You must be a first-time home buyer (no homeownership in the last three years)
• You must complete homeownership education
• You must live in the home as a primary residence
• You need a credit score of 620 or higher
• Your debt-to-income (DTI) ratio— the proportion of your gross monthly income that is allocated to debt—should generally not exceed 43%.
• Your loan amount must be within conforming loan limits for a single-family home: $832,750 for most areas and up to $1,249,125 in high-cost housing markets.

2. Fannie Mae HomeReady

The HomeReady program is a 3% down payment home loan backed by Fannie Mae. You can use it to buy a single-family home, a condo, or even a multi-unit property with up to four units. However, one of those units must be your primary residence.

With HomeReady, you don’t need to be a first-time buyer, and you can include rental income from roommates or tenants to help qualify if your income is limited. Additionally, your down payment can be sourced from gifts or down payment assistance programs.

To qualify for Fannie Mae HomeReady, you must meet the following eligibility requirements:

• You must take a homeownership education course.
• You must have a credit score of 620 or higher
• Your income must be at or below 80% of the area median income (AMI)
• Your DTI ratio cannot exceed 50%
• Your loan amount must fall within conforming loan limits, $832,750 to $1,249,125.

3. Freddie Mac Home Possible

The Home Possible program is a 3% down mortgage backed by Freddie Mac. Like Fannie Mae’s HomeReady, it’s open to both first-time home buyers and low- to moderate-income borrowers. One key difference: Home Possible allows non-occupying co-borrowers, such as a parent or relative, to help with the down payment, even if they won’t live there.

To qualify for Freddie Mac Home Possible:

• You must have a credit score of 660 or higher
• Your income must be at or below 80% of the area median income (AMI)
• Your DTI must not exceed 43%
• Your loan amount must fall within conforming loan limits, $832,750 to $1,249,125
• You must take a homeownership education course
• You must live in the home as your primary residence

4. Freddie Mac HomeOne

The HomeOne program is another 3% home loan backed by Freddie Mac. It’s intended for first-time buyers who may not qualify for other low-down-payment programs due to income limits or location restrictions. HomeOne has none of those limits. It also allows refinancing, including cash-out refinance options for eligible homeowners.

To qualify for Freddie Mac HomeOne:

• At least one applicant must be a first-time home buyer
• At least one applicant must have a credit score of 620
• You must take a homeownership education course
• You must live in the home as their primary residence
• The property type must be a single-unit home (condos and townhomes allowed; manufactured homes are not)

Pros and cons of 3% down payment mortgage loans

If you’ve felt stuck in the home-buying process because saving seems impossible, you’re not alone. Here’s a quick look at the advantages and disadvantages of using a 3% mortgage to buy your home.

3% Down Payment Mortgage Pros

• Easier to afford a house, especially if you’re still paying off student loans or other debt
• Lets you buy sooner, before home prices rise further
• Lets you build home equity faster, helping you own your home sooner.
• Can use gift funds toward the down payment
• Eligible for down payment assistance programs

3% Down Payment Mortgage Cons

• Requires private mortgage insurance (PMI) until you reach 20% equity
• Smaller down payment means less initial home equity
• Higher monthly mortgage payments due to the larger loan amount
• Risk of going underwater if home values fall
• Some programs cap income or restrict property type

Other low and no down payment mortgage options

A 3% down payment mortgage can help you get into a home sooner, but it’s not your only path to homeownership. Several government-backed loan programs offer low down payment or even no down payment options. Depending on your credit score, income, or military service, one of these alternatives may fit your needs better.

• FHA loans: Require 3.5% down for buyers with credit scores of 580 or higher or 10% down for scores between 500 and 579. These loans come with mortgage insurance premiums (MIP) paid upfront and monthly, typically for the life of the loan unless you refinance.
• VA and USDA loans: Offer 0% down financing. VA loans are limited to veterans and active-duty service members, while USDA loans are available in rural and suburban areas to buyers under 115% of the area median income (AMI). Both can offer competitive rates and low or no mortgage insurance.

Compare low-down-payment loan options

Some buyers put more down to lower their interest rate and monthly payment, but it’s not required. A smaller down payment lets you buy sooner, avoid rising prices, and start building home equity. Let’s look at your low down payment mortgage options.

Which mortgage option is best? You can use a mortgage calculator to explore your options or request preapproval from a lender to learn which loan programs are the best fit for you.

FAQs about 3% down payment mortgages

Today's mortgage rates for home buyers

As mortgage rates and home prices continue to rise, many buyers are reluctant to wait until they’ve saved a substantial down payment. They want to purchase as soon as possible.

Today’s 3% down conventional loans, along with federally insured options like FHA and VA loans, make it easier for people to own a home, letting them purchase sooner.

Which low down payment option is right for you? A mortgage pre-approval can estimate your actual costs for different loan types.