Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
The Quick Read: Usually no, you do not need assistance to use a 3% conventional loan. But the loan only lowers the cash you owe, and you still have to find that 3% plus closing costs. Assistance is one way to find it. It also pairs with a different kind of first mortgage, so the real choice is often between two routes.
What Does a 3% Conventional Loan Actually Cover?
It covers one thing: the gap between the price and the loan. Put 3% down, borrow the other 97%, and you have met the down payment rule. Closing costs sit outside that. So do prepaid items like the first year of homeowners insurance and tax escrow deposits. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Say you are buying a home with a 3% conventional loan. Your cash need is the 3% plus the closing costs plus the prepaids. Many buyers fixate on the first number and get surprised by the other two.
This is where assistance enters. Down payment assistance is help that covers part of your upfront cash. It can come as a grant, a forgivable loan or a repayable loan. Lendmire’s down payment assistance programs come in four shapes (a grant, a forgivable second, a repayable second and a refinance-cost second), and they sit on top of a government-backed first mortgage. Conventional 3% loans can be paired with public assistance too, but that route runs through a public program, not through the options described here.
So the honest answer has two layers. Assistance is not a requirement for 3% down. It is a tool for covering cash, and the 3% product does not make that tool obsolete. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Where Does the 3% Come From Without Assistance?
It can come from your savings, a gift from a relative, or a grant. Fannie Mae’s HomeReady program allows 3% down with no minimum contribution from your own funds. Gifts, grants and community second loans can cover the down payment and closing costs. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
That sounds open to everyone. It is not. There are three doors into a 3% conventional loan, and each has a gate.
- The income-capped door. HomeReady ties eligibility to your income compared with the area median income at the property’s location. Repeat buyers can use it. First-time status is not required.
- The no-income-limit door. The standard 97% option has no program income limit. The FDIC’s summary of that product notes that first-time buyers above the HomeReady income cap can still buy with as little as 3% down.
- The unit-count gate. The best 3% terms apply to one-unit homes. Two- to four-unit purchases sit at a lower leverage ceiling, so you need more down. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Here is the catch. A buyer who does not fit these options is looking at a bigger down payment, FHA, or another program.
Public programs can also layer a second loan behind a first mortgage, but the pairing depends on the program. The Fannie Mae Selling Guide’s rules for community seconds cover purchases of a one- to four-unit principal residence. When both the second-loan provider and the first mortgage set income limits, the stricter limit applies. In plain words: stacking help on a loan is possible, but each layer adds its own rules.
Who Still Reaches for Assistance?
Buyers who are short on cash, short on reserves, or tight on debt ratios. For them, the question is not “3% or assistance.” It is “which first mortgage and which kind of help leaves me with the most breathing room.”
Across the wholesale programs Lendmire places files with, assistance comes in four shapes. Each pairs with a government-backed first mortgage, through wholesale lenders, subject to program guidelines and full underwriting.
| Shape | Size | Repay? | Credit floor |
|---|---|---|---|
| Grant | 2% or 3.5% of price | Nothing to repay | 620 |
| Forgivable second | 3.5% of price or value | Forgiven after 36 or 60 payments | 640 |
| Repayable second | 3.5% or 5% of price or value | Yes, balloon in year 10 | 660 |
| Refinance-cost second | 1% to 3.5% of balance | Yes, same terms as repayable | 660 |
A few details matter more than the table can show.
The grant is released at closing. No lien, no payment, no interest. It pairs with FHA first mortgages on one- to four-unit homes. You qualify if household income is at or below 140% of the area median, or if you fall into a qualifying category. Those categories include first responders, educators, medical workers, civil servants, military personnel, first-time buyers, and buyers in underserved census tracts. A homebuyer education course is required. The grant is not offered in Washington.
The forgivable second has no interest and no monthly payment. It is fully forgiven after 36 or 60 on-time payments on your first mortgage, depending on the version. It also pairs with USDA and HUD-184 first mortgages. It carries no income limit beyond USDA’s own on a USDA loan.
The repayable second is a real loan. It has interest, a monthly payment, a 30-year schedule and a balloon due in year 10. At the 5% size, it covers the 3.5% minimum investment plus 1.5% toward closing costs and prepaid items. It carries its own disclosures at application and closing.
The refinance-cost second helps with closing costs on an FHA refinance, up to 104% combined leverage. It is not for a streamline refinance.
Notice what is missing from every row: a first-time-buyer requirement. No option requires one. Repeat and move-up buyers qualify. Lendmire’s piece Can a Move-Up Buyer Who Still Owns a Home Get Down Payment Assistance? covers the extra questions that situation raises.
What Does FHA Add Underneath?
An FHA loan asks for a 3.5% minimum investment, which leaves a 96.5% first mortgage. The price of that structure is mortgage insurance. There is an upfront premium of 1.75% of the base loan, which you can finance into the loan. There is also an annual premium that varies by loan size and leverage.
Duration matters here. On FHA, the annual premium lasts for the life of the loan when you start above 90% loan-to-value. At or below 90%, it runs 11 years.
FHA also has county-based one-unit loan limits. They run from $541,287 to $1,249,125, depending on the county. The grant does not pair with high-balance first mortgages.
Two honest points about credit. FHA itself reaches lower scores than the assistance options do. The credit floors above (620, 640, 660) sit higher. If your score is below those, assistance may not be available even though the FHA loan alone could be.
Cash to Close: What Covers What?
Your out-of-pocket picture splits into three buckets. Here is how the common funding sources line up.
| Cost | Savings | Gift | Assistance |
|---|---|---|---|
| Down payment (3% or 3.5%) | Yes | Yes | Grant, forgivable, repayable |
| Closing costs | Yes | Yes | Repayable at 5% size |
| Prepaid items | Yes | Yes | Repayable at 5% size |
Gifts work for the down payment and closing costs on most files. They need a letter showing no repayment is expected. And the donor cannot be a party with a stake in the sale. A seller or agent funding your assistance is not allowed on FHA, and the same logic runs through conventional second-loan rules. Lendmire’s piece Can a Seller Fund Down Payment Assistance on a Conventional Loan? goes deeper.
Think of it this way: a gift is simpler when you have a generous relative. Assistance is useful when you do not.
3% Conventional vs. FHA With Assistance: The Monthly Side
Cash to close is only half the story. The other half is what the loan costs you each month and for how long.
A 3% conventional loan carries private mortgage insurance. That insurance is cancellable. Under the CFPB’s examination procedures for the Homeowners Protection Act, you can request cancellation when your balance reaches 80% of the original value. It ends automatically at 78%. The same manual notes the rules do not apply to “high-risk” loans, and that a second loan on the property can complicate a cancellation request.
FHA works differently. Its annual premium stays for 11 years or the life of the loan, depending on your starting leverage, as covered above. If you plan to keep the home a long time and have strong credit, the cancellable conventional insurance can be cheaper over the years. If your credit is thinner, FHA pricing may treat you better. This one is a genuine toss-up until you see both quotes side by side.
Assistance changes the monthly picture in different ways:
- A grant adds no payment and no lien.
- A forgivable second adds no payment while it is forgiven.
- A repayable second adds a monthly payment, and the balloon comes due in year 10.
That last point is easy to skip. A repayable second can help you close, but it makes your monthly budget heavier and gives you a date to plan around. If you expect to sell or refinance before year 10, that may be fine. If not, plan for the balloon.
Three Buyers, No Dollar Signs
Buyer one: strong credit, relatives who can gift. Picture a renter with a high score and parents ready to gift the down payment. A 3% conventional loan fits. The gift covers the 3%, and the cancellable insurance keeps long-term cost down. Assistance adds paperwork and little else. Skip it.
Buyer two: a public-service worker with thin savings. Say you work as an educator and have a mid-600s score and very little saved. An FHA first mortgage with the grant option covers the full 3.5% minimum investment (at the 3.5% size) with nothing to repay. You still bring closing costs and prepaids. Education coursework comes first. This is the profile the grant was built for.
Buyer three: a move-up buyer with equity locked in a current home. Consider a repeat buyer whose cash is tied up until the old home sells. Income is above the conventional income cap, so HomeReady is out. The forgivable second, paired with an FHA first mortgage, adds no monthly payment while it is forgiven, though you give up some flexibility until the forgiveness period ends.
The Fine Print Most Buyers Miss
Owner-occupied only. Every assistance option applies to a primary residence you will live in. Second homes and rentals are out. One sentence, and that is the end of that topic.
No stacking. You cannot combine one assistance option with another, and a mortgage credit certificate is not permitted with the second-loan options. Pick one.
Forgiveness has conditions. The forgivable second is forgiven only after on-time payments on your first mortgage, and a serious delinquency breaks the clock. Selling or refinancing before the forgiveness period ends can trigger repayment. Many public programs add similar recapture periods.
Underwriting is still real. Each file gets an automated underwriting finding, and the repayable second does not allow manual underwriting. Blended credit scores can help when a co-borrower has a lower score, but only when the higher-scoring borrower earns at least 60% of household income.
Education may be required. The grant requires an approved homebuyer education course. You pay up front, and the cost is credited back at closing.
Other programs can be a better fit. USDA’s guaranteed loan offers 0% down with a 90% guarantee, so there is no down payment to cover, though closing costs remain. HUD-184 loans, built for Native American borrowers, have their own small down payment and direct buyers to tribal or state housing agencies for extra help.
Key Terms Defined
Area median income: The middle household income for the county or metro where the home sits. Assistance and some conventional programs compare your income to it.
Minimum required investment: The cash an FHA buyer must put into the purchase, 3.5% of the price or value. Gifts and some assistance can fund it.
Mortgage insurance: A premium that protects the lender if you stop paying. Conventional loans use private mortgage insurance. FHA uses an upfront and an annual premium.
Second lien: A second loan recorded behind your main mortgage. It is a real loan, even when no payments are due.
Forgivable: A second lien that is wiped out if you keep the home and make on-time payments for the stated period.
Balloon: A lump sum due at the end of a set term, in this case in year 10 of the repayable second.
Automated underwriting finding: The computer-run decision a lender uses to review your credit, income and assets against program rules.
How to Decide
Run through five questions, in this order.
1. Can savings or a gift cover the 3% and closing costs? If yes, a 3% conventional loan may work without help.
2. Do you clear the income cap or first-time test for the 3% product? If neither fits, conventional at 3% is not open to you.
3. Is your credit score at or above 620, 640 or 660? The assistance options need it. Below that, assistance is likely off the table.
4. How long will you keep the home? Long stays favor cancellable conventional insurance. Short stays make FHA’s insurance term matter less.
5. Can your budget handle a payment on a repayable second? If not, the grant or forgivable option fits better.
Strong credit and a gift point toward 3% conventional. Thin savings and public-service work point toward the grant. Everything in between deserves a side-by-side comparison on real quotes.
Your Next Step
If you are buying a primary home and want to see whether a down payment assistance option fits your file, Lendmire can help you compare the grant, forgivable and repayable structures alongside an FHA, USDA or HUD-184 first mortgage. Programs change, qualification is subject to lender guidelines and full underwriting, and nothing here is a commitment to lend.
Frequently Asked Questions
Can I use down payment assistance with a 3% conventional loan?
Sometimes, through public programs that place a second loan behind a conventional first mortgage. The options Lendmire arranges pair with FHA, USDA and HUD-184 first mortgages instead. If you want assistance through Lendmire, plan around a government-backed first lien.
Do I have to be a first-time buyer to get assistance?
No. Repeat and move-up buyers qualify for every option described here. The three-year no-ownership test is only one of the qualifying categories for the grant. It matters more on the conventional side, where the standard 97% product requires a first-time buyer.
Does 3% down cover my closing costs?
No. The 3% is the down payment only. Closing costs and prepaid items are separate. Gifts and, on conventional programs that allow them, grants can help cover them. On the assistance side, the repayable second at the 5% size includes money toward closing costs and prepaids. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Is down payment assistance a gift I never repay?
Only the grant works that way, and it comes with its own eligibility tests. The forgivable second is a loan that is forgiven after on-time payments. The repayable second is a loan with a monthly payment and a balloon in year 10. Read each one as what it is.
Can a seller or agent pay for my assistance?
No. Interested parties in the sale cannot fund your minimum investment on FHA, and conventional second-loan rules bar them as well. Assistance comes from a program, and gifts come from family or others with no stake in the sale.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps home buyers in 16 states pair an FHA, USDA or HUD-184 first lien with a down payment assistance option arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae HomeReady Mortgage
2. FDIC Affordable Mortgage Lending Center: Fannie Mae Standard 97% LTV Mortgage
This article is part of Lendmire’s down payment assistance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Use Down Payment Assistance on a 2-4 Unit Home · Can a Seller Fund Down Payment Assistance on a Conventional Loan? · Which Down Payment Assistance Programs Are Still Funded in 2025?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.