Conventional Loan Down Payment Requirements for a First-Time Buyer

The Quick Read: A first-time buyer can put as little as 3% down on a conventional loan, which is 97% loan-to-value on a one-unit principal residence with a fixed rate. Buyers who don’t meet the first-time definition generally need 5% down on the same kind of home. The often-quoted 20% is not a minimum. It is the point where mortgage insurance is no longer required, subject to lender guidelines and full file review.

What Is the Down Payment on a Conventional Loan?

The down payment on a conventional loan is the part of the price you pay in cash. The loan covers the rest. Lenders express this as loan-to-value, or LTV. A 97% LTV means 3% down. A 95% LTV means 5% down. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

“Conventional” only means the loan isn’t part of a government program like FHA or VA. Across the wholesale programs placed through Lendmire’s conventional loan programs, the same two numbers show up on nearly every purchase file: 97% for qualifying first-time buyers and 95% for most other buyers of a primary residence.

The 20% figure comes from mortgage insurance. Put down less than 20% and the loan needs insurance. That is a cost, not a barrier.

Who Counts as a First-Time Buyer?

A first-time buyer is someone with no ownership interest in a residence during the previous three years. It does not mean you have never owned a home. A person who sold a house four years ago can qualify.

Only one borrower on the loan needs to meet the test. If you buy with a partner who owned recently and you did not, the loan can still qualify for the 3% option. Fannie Mae’s 97% LTV program page states that at least one borrower must be a first-time homebuyer for the standard 97% option. It also requires homeownership education on purchases above 95% LTV when all occupying borrowers are first-time buyers. One borrower completes the course. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

Two other agency programs, HomeReady and Home Possible, reach the same high leverage without a first-time requirement. They carry an income limit of 80% of area median income. A repeat buyer under that limit can use them. Check the area limit with the loan officer, because it varies by location.

How Is the Loan Underwritten, Step by Step?

Underwriting follows the same order on most files. Gaps usually show up at steps two and four.

1. Program screen. The lender tests which program fits. First-time status opens the standard 97% option. Income at or below the 80% area limit opens HomeReady or Home Possible. These are agency tests, not lender preference.

2. Automated findings. The file runs through the agency’s automated system. On the wholesale conventional programs, a 620 decision score is the starting floor, and the automated finding governs most files. The total ratio ceiling is 50%. The finding weighs the whole profile, so the minimum down payment is only a floor. A thin file can get a different answer than a strong one at the same LTV.

3. Education. If every occupying borrower is a first-time buyer on a loan above 95% LTV, one must finish homeownership education. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

4. Source of funds. The lender documents where the down payment came from. Statements and gift paperwork go in here. Missing pages are a common reason a first-time file stalls.

5. Appraisal and LTV. LTV is measured against the lower of the sales price or the appraised value. A low appraisal raises the cash you need to keep the same LTV.

6. Mortgage insurance setup. Insurance is arranged at closing and removed later under federal rules.

Because this is a consumer mortgage, you receive a Loan Estimate and a Closing Disclosure. Compare them line by line.

What Property Types and Occupancy Qualify?

Occupancy sets the leverage. The 3% option is for a one-unit principal residence with a fixed rate. Fannie Mae’s standard 97% summary shows condos and planned unit developments are eligible, and manufactured housing is not.

Investment property uses much lower leverage and sits outside this article. Occupancy decides the number.

Can Gift Funds Cover the Down Payment?

Yes, on a one-unit principal residence. Under the Fannie Mae Selling Guide’s personal gifts rule, no minimum contribution from your own funds is required there, even above 80% LTV. The whole amount can be a gift.

Three conditions matter:

• A donor letter. It is signed and states that no repayment is expected.
• Traceable money. The lender wants to see the gift move from the donor to you.
• Multi-unit and second homes. Above 80% LTV on a two- to four-unit principal residence or a second home, you must put in 5% of your own funds before gifts can add to it. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

If the donor has lived with you for the last 12 months, the gift can count as your own funds under the same guide. Both must occupy the home.

What About Seller Credits?

Seller credits help with closing costs. They cannot be the down payment. The Selling Guide’s interested-party contribution rule caps financing concessions on a principal residence at 3% of the price above 90% LTV, 6% between 75.01% and 90%, and 9% at 75% or less. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Amounts above the cap are treated as a sales concession. That lowers the price used to figure LTV, which can raise the cash you need. Don’t plan on a seller credit to close a gap in the down payment.

Where Does the Standard Rule Break?

These are the edge cases that change the number.

• The three-year lookback. Owned a home two years ago? You are not a first-time buyer under the agency definition. Without an income-limited program, you are in the 5% group.
• Income limits. HomeReady and Home Possible cut off at 80% of area median income. A strong income can push you out. The first-time-buyer path has no income cap, though it carries its own rules, including a fixed rate.
• Credit events. Agency waiting periods apply: four years from a chapter 7 discharge, seven from a foreclosure, four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
• Adjustable rates. The wholesale floor moves to 640 on an adjustable rate under manual underwriting. The 3% option is for fixed-rate loans.
• Manual underwriting. Ratios tighten to 36% or 45% depending on reserves and score. Most first-time files stay on the automated path, and the 50% ratio ceiling applies there.
• A low appraisal. The price you agreed to and the value the appraiser finds can differ. LTV uses the lower number.

What Does a Smaller Down Payment Do to the Monthly Budget?

A smaller down payment means a bigger loan and mortgage insurance. Both raise the monthly cost. Published typical annual premiums run from 0.58% to 1.86% of the loan balance. That is a range, not a quote. Your premium depends on your credit, your LTV and the loan.

Here is how that plays out for a first-time buyer comparing 3% against 10% down on the same home. The 3% buyer keeps more cash after closing but carries a larger balance and a higher insurance cost. The 10% buyer has a smaller loan and usually pays less for insurance. Neither is wrong. It comes down to how much cash you want left for repairs and emergencies.

Seller credits can offset closing costs, but the down payment, closing costs, prepaid items and any required reserves all come out of cash. Ask your loan officer for the full cash-to-close figure, not just the down payment.

How Does Mortgage Insurance Come Off?

Conventional mortgage insurance is not permanent. The CFPB explains the cancellation rules under the Homeowners Protection Act.

• You can ask the servicer to cancel when your balance is scheduled to reach 80% of the home’s original value.
• The request is in writing. You need a good payment history, no subordinate liens, and no decline in the home’s value.
• The servicer must end it automatically when the balance is scheduled to reach 78% of the original value, if you are current.

FHA mortgage insurance works differently. Don’t assume the rules carry over.

Key Terms Defined

LTV (loan-to-value): The loan amount divided by the lower of the price or the appraised value.

PMI (private mortgage insurance): Insurance on a conventional loan above 80% LTV that protects the lender, not you. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

Interested-party contribution: Money from a seller, builder or agent toward your closing costs. It cannot fund the down payment.

AMI (area median income): The local income benchmark used for the 80% limit on HomeReady and Home Possible.

How Should You Decide How Much to Put Down?

Start with the floor, then test it against your cash. A practical order:

1. Confirm whether you meet the first-time definition, since it sets 3% or 5%.

2. List what must be paid in cash: down payment, closing costs, prepaids and reserves.

3. Decide how much cash you want left after closing.

4. Ask for the same price at two or three down payment levels and compare the insurance line on each.

5. Check whether a gift is available and get the donor letter early.

6. Ask whether an income-limited program fits if you are not a first-timer.

The loan limit is another reason to put more down on a pricier home. The conforming limit caps the loan amount, not the price, and a larger down payment can keep the loan under it. Ask your loan officer for the limit in your county.

If you are buying a home and want to see whether a conventional loan fits your file, Lendmire can help you compare the options and what each one asks of the file.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae – 97% Loan to Value Options

2. Fannie Mae – Standard 97% summary (FDIC-hosted)

3. Fannie Mae Selling Guide B3-4.3-04 Personal Gifts

4. Fannie Mae Selling Guide B3-4.1-02 Interested Party Contributions

5. CFPB – When can I remove PMI