Conventional loan down payments: How much do you need?

December 6, 2022 - 7 min read

Conventional down payments are flexible

Many home buyers think they need 20% down for a conventional loan. But that’s far from true.

Conventional loan down payments start at just 3% for first-time home buyers. Or, you could pay 5%-10% out of pocket to lower your interest rate and payments.

Putting down 20% or more gets you out of paying for PMI — but that doesn’t mean it’s the right choice for everyone. Many buyers find they’re better off with a smaller, more affordable down payment.

Verify your conventional loan eligibility. Start here

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What’s the down payment on a conventional loan?

All conventional mortgage loans require a down payment. But the amount you need can vary widely. Home buyers can make a conventional down payment anywhere between 3% and 20% (or more) depending on the lender, the loan program, and the price and location of the home.

Keep in mind that when you put down less than 20% on a conventional loan, you are required to pay private mortgage insurance (PMI). This coverage acts as a safeguard to lenders in case borrowers default on their loans.

PMI will cost you approximately 0.5% to 1.5% of your loan amount per year. However, it can usually be removed after a few years once you’ve built up enough equity in the home.

Verify your conventional loan eligibility. Start here

Conventional loan down payment options

Home buyers can choose from a wide range of conventional loan down payments. The most common amounts are 3% down, 5% down, 10% down, or the full 20% down. Here’s what your mortgage options look like at each down payment tier.

Conventional loans with 3% down

Conventional loan programs that allow 3% down are typically reserved for first-time buyers and/or lower-income borrowers. In addition, you usually have to purchase a single-family primary residence.

“There are four main programs that offer 3% down payments, including the traditional conventional 97% LTV loan, Freddie Mac’s Home Possible loan, Freddie Mac’s HomeOne loan, and Fannie Mae’s Home Ready loan,” says Deb Gontko Klein, branch manager for Reliability in Lending - PRMI Chandler.

3% down conventional loan options:

  • Conventional 97 loan (offered by Fannie Mae/Freddie Mac): Requires 3% down, 620-660 FICO credit score minimum, 50% DTI maximum, 97% LTV ratio maximum
  • Fannie Mae Home Ready loan: Requires 3% down, 620-680 FICO credit score minimum, 50% DTI maximum, 97% LTV maximum, annual income can’t exceed 80% of median income for that area
  • Freddie Mac Home Possible loan: Requires 3% down, 660 FICO credit score minimum, 43%-45% DTI maximum, 97% LTV maximum, annual income can’t exceed 80% of median income for that area
  • Freddie Mac HomeOne loan: Requires 3% down, 620 FICO credit score minimum, 45% DTI maximum, 97% LTV maximum

“First-time buyers ... can make as little as 3% down payment on conventional conforming loans up to the traditional conforming loan limit — which is now $,” says Ken Sisson, a Realtor and associate broker with Coldwell Banker Realty.

“The great news here is that to qualify as a first-time buyer, you simply must not have had an ownership interest in real property over the past three years,” he adds.

Check your 3% down eligibility. Start here

Conventional loans with 5% down

Not all home buyers can qualify for a 3% down conventional loan. Fortunately, other low-down-payment options are available.

Anyone can apply for a conventional loan with 5% down; you don’t need to be a first-time home buyer or have a low income to qualify. However, you must purchase a primary residence. If you’re buying a vacation home or investment property, you’ll need more than 5% down.

There is little difference between a 5% down and a 3% down conventional mortgage, as you’ll be obligated to pay PMI for both. But because you put down a bit more than 3%, you may get a better interest rate. And your monthly mortgage payment will be slightly lower, too.

Check your 5% down eligibility. Start here

Conventional loans with 10% down

Home buyers who have a little more cash saved up can choose to put between 10% and 20% down on a conventional loan.

While PMI is still required with 10% down, you’ll pay less than you would with 5% or 3% down. Plus, your interest rate will likely be lower and your monthly mortgage payments should be more affordable.

There are only a few scenarios where a 10% down payment is required. Conventional loans for a second home always require at least 10% down, and investment property mortgages require 15% or more.

Home buyers with 10% down may also have the option to do a “piggyback mortgage.” This involves paying 10% in cash and taking a 10% second mortgage to supplement your down payment. Together, these make 20% of the purchase price — meaning you can avoid PMI with only 10% out of pocket.

Check your 10% down eligibility. Start here

Conventional loans with 20% down or more

Conventional loans no longer require 20% down, despite what many first-time home buyers believe. But there are certain perks for borrowers who do make big down payments.

For one, PMI is never required when you put down 20% or more. Plus, your monthly mortgage payments will be smaller — and you’ll pay less total interest over the life of the loan because your fixed interest rate will be lower.

Home buyers can also put down more than 20% if they choose.

The more you put down, the lower your interest rate and payments should go. Plus, you’ll have immediate home equity built into your property. That gives you the ability to borrow via a home equity loan or HELOC in the near future.

Do you have to put 20% down on a conventional loan?

The days when all home buyers had to put 20% down for a conventional loan are long gone. Today, most borrowers can get a conventional loan with as little as 3%-5% out of pocket. The tradeoff is that these low-down-payment conventional loans come with monthly PMI payments.

That said, there are a few situations where 20% down is still required. If you use a “jumbo loan,” for example, 20% down may be necessary.

“Many lenders have loan-to-value restrictions and guidelines that will typically require a larger down payment for considerably higher loan amounts. In other words, you may likely find that, when you are financing $1.5 million or more, a 25% or 30% down payment may be required,” Sisson cautions.

You’d also need 20% down (or more) to purchase a rental property with multiple units.

“When taking out a conventional loan, you will probably only be required to put 20% or more down if you are looking to purchase a three- to four-unit investment property, which requires a minimum of 25% down, or if you are running into issues with your debt-to-income ratio,” explains Jonathan Bellemore, sales manager for Embrace Home Loans.

How your down payment impacts your loan

Keep in mind that your down payment amount will impact your loan in several ways.

“When you put very little down, your total monthly payment, interest rate, and private mortgage insurance expense are all increased,” explains Bellemore.

“As you put more money down on the loan, your loan-to-value (LTV) ratio decreases — which simply means you are borrowing less. That makes your loan look more favorable,” he says. “You usually get better terms as your LTV decreases. If you can put down at least 20%, you don’t have to pay PMI, which will save you money over the long term.”

If you can’t afford to put 20% or more down, keep in mind that the higher your down payment amount, the lower your PMI costs will be. You’ll pay less toward PMI, for example, if you put down 10% versus 5%.

Additionally, making a 20% or higher down payment usually triggers a lower interest rate, which can save you a lot over the life of the loan.

Check your conventional down payment options. Start here

How much should you put down on a conventional loan?

There’s no perfect answer to this question. The amount you should put down on a house will depend on what you can afford as well as the requirements of your lender and loan program.

Still, many experts advise at least a 10% down payment if you can afford it.

“If you have the ability, I recommend putting 10% to 20% down for a single-family, owner-occupied conventional mortgage loan,” Bellemore says. “That’s because, considering the sky-high values of today’s homes, only putting the minimum down means you will be financing a ton of money, which puts a strain on most people’s budgets.”

Bellemore points out that “the more you can put down, the lower your payment will be.” Plus, “if you have enough wiggle room in your down payment, you can always pivot if you find issues along the way. Some of these issues might include things like if the appraisal comes in low and you must pay the difference, or perhaps your insurance or property tax costs turn out to be higher than expected. Having a larger down payment gives you the ability to be more flexible.”

Klein also suggests looking closely at your total monthly obligations before committing to a down payment number. “From there, determine what you can truly afford for a mortgage payment,” she adds.

Your next steps

There’s no one-size-fits-all down payment amount. Home buyers have a wide range of conventional loan down payment options — and the right one for you depends on your budget and financial goals.

Your mortgage lender will be a big help in this regard. You’ll work closely with your loan officer to determine the right mortgage program and down payment for your needs. When you’re ready to get serious about home buying, reach out to a lender to talk about your options.

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Erik J. Martin
Authored By: Erik J. Martin
The Mortgage Reports contributor
Erik J. Martin has written on real estate, business, tech and other topics for Reader's Digest, AARP The Magazine, and The Chicago Tribune.