The Quick Read: You apply the same way you would for any conventional mortgage, but the file has to prove a few extra things. On a one-unit primary residence, the minimum is 3% down when at least one borrower is a first-time buyer, and 5% down otherwise. Mortgage insurance applies above 80% loan-to-value, and it comes off later. Everything below is subject to lender guidelines and full file review.
What Does “Minimum Down Payment” Actually Mean?
The minimum down payment is set by the highest loan-to-value ratio (LTV) a program allows. LTV is the loan amount divided by the home’s value. A 97% LTV means 3% down. A 95% LTV means 5% down. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Conventional payment estimate
The starting figures are an example price at the first-time buyer’s minimum down payment. Replace them with yours.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a conventional loan quote.
Estimate seeded at the low end of Fannie Mae’s published range (0.58%–1.86% a year); the insurer prices the actual premium on the score and the leverage. Applies only above 80% loan-to-value.
Illustrative starting assumptions: a $350,000 price, the first-time buyer’s minimum down payment, a thirty-year term at the current Freddie Mac benchmark, mortgage insurance at the low end of Fannie Mae’s published range, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a conventional loan quote; your rate is set by the lender at lock. The mortgage insurance figure is an editable estimate seeded from Fannie Mae’s published typical range, not a premium quote; the insurer prices the actual premium, and the cancellation month assumes scheduled payments with no extra principal and no change in value. Taxes, insurance and dues are editable estimates; closing costs are not included. Conforming loan limits apply by county. Licensed in sixteen states for consumer mortgages.
Here is how it breaks out on a home you will live in, across the wholesale programs Lendmire places files with:
| Situation | Maximum LTV | Down payment |
|---|---|---|
| One unit, fixed rate, first-time buyer | 97% | 3% |
| One unit, other buyers | 95% | 5% |
| Two- to four-unit primary residence | 95% | 5% |
| Second home | 90% | 10% |
Fannie Mae’s Eligibility Matrix is the agency document that sets these limits. Lenders sell most conventional loans to Fannie Mae or Freddie Mac, so those limits become your limits.
“First-time buyer” has a plain definition. You have had no ownership interest in a residence in the previous three years. Someone who sold a house five years ago can still qualify.
Two details matter. The 97% option is for fixed-rate loans. Adjustable-rate loans cap lower. Fannie Mae’s 97% LTV FAQ also says the 97% option covers condos, co-ops and planned developments, but not high-balance loans. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Which Program Gets You to 3% Down?
Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Two routes get you there. The first is the standard 97% option, which requires at least one first-time buyer and has no income limit. The second is HomeReady, which does not require a first-time buyer but caps your income at 80% of the area median income (AMI). Freddie Mac has a counterpart called Home Possible.
Say you have owned two homes and want to buy a third as your residence. The standard 97% option is closed to you. HomeReady is open, as long as your income is under the cap. Fannie Mae’s HomeReady page also lists a 50% debt-to-income ceiling and requires you to buy as a principal residence.
AMI depends on where the home sits. Ask your loan officer to look it up for the property address before you fall in love with a house.
One more note. Moderate-income buyers are often surprised that HomeReady does not require you to put in a set amount of your own money on a one-unit home. Gifts and grants can cover it, which leads to the next section.
Step by Step: How the Application Works
The sequence is the same for any conventional purchase. The minimum-down watch-outs are what change. Here is the order.
1. Check your readiness. Pull your credit reports, add up your monthly debts, and tally your savings. Across the wholesale conventional programs, the typical floor is a 620 decision score, though the automated finding governs most files. That means a lender’s automated system weighs the whole file instead of a single number. Some lenders set a higher floor of their own.
2. Get preapproved. A preapproval means a loan officer has reviewed your credit and documents. A prequalification is a quick estimate from what you tell them. Sellers take only the first one seriously.
3. Make an offer and sign a contract. Your contract price and the appraised value both matter, as step 6 shows.
4. Submit the full application. After you apply, you get a Loan Estimate, a standard three-page form showing the loan terms and costs. Compare it against every later version.
5. Automated underwriting. Underwriting is the lender’s review of whether you can repay. Most 97% loans must go through Fannie Mae’s automated system, called Desktop Underwriter (DU), because the program is DU-only above 95%. The system returns a finding and a list of conditions. A condition is a document the lender still needs.
6. Appraisal. LTV is measured against the lower of the price and the appraised value. A low appraisal pushes your LTV up and can break the program maximum. You then bring more cash, renegotiate, or walk. Plan for that possibility with a cushion in savings.
7. Homebuyer education. If every borrower who will live in the home is a first-time buyer and LTV is above 95%, at least one borrower must complete a course. On HomeReady purchases, the course applies whenever all occupying borrowers are first-time buyers. Fannie Mae’s HomeView course can satisfy it. Your loan officer will tell you which applies.
8. Final approval and closing. You receive a Closing Disclosure at least three business days before closing. Check the cash to close and the monthly payment against your latest Loan Estimate. Questions on the document get easier to resolve before the signing table.
Documents to Gather Before You Apply
Lenders ask for the same core paper in every file. Gather it first so conditions do not stall you later.
- Income: pay stubs and W-2s for salaried borrowers. Self-employed borrowers typically provide traditional personal-income documentation and a profit-and-loss statement, and the lender decides how many years.
- Assets: recent bank statements for every account holding your down payment and closing money.
- Identity and credit: government ID and permission to pull credit.
- Housing history: the lender may ask where you have lived and what you paid.
- Contract: the signed purchase agreement once you have one.
- Gift documents: a donor-signed gift letter and the transfer paper trail, if anyone is helping.
Self-employed borrowers should expect more questions. Business income is averaged and examined, and the answer can land lower than what you feel you earn.
Where Can the Down Payment Come From?
Your own savings, gifts, and on HomeReady, grants and community second mortgages are all allowed sources. The one rule that ties them together is documentation. An underwriter needs to see where every dollar came from.
Fannie Mae’s Selling Guide on personal gifts says gift funds can cover all or part of the down payment, closing costs or reserves on a principal residence. Acceptable donors are relatives, or people with a familial relationship, such as a domestic partner, a fiancé(e), a former relative or a long-standing mentor. The donor cannot be the builder, developer, real estate agent or another interested party.
Here is the catch: a large deposit with no paper trail can be unusable. If a parent wires money into your account, get the gift letter signed and keep the transfer record. Do not move cash around between accounts without a statement showing it.
Seller credits are a different matter. Sellers can help with closing costs, but both agencies cap what sellers, builders and agents may contribute, and the caps tighten as your LTV rises. Treat seller help as a closing-cost tool, never as your down payment. Your loan officer can confirm the exact limit for your loan.
What Does Closing Really Cost Beyond the Down Payment?
Your cash to close is more than the down payment. It adds closing costs, prepaid items such as the first insurance premium and escrow deposits, and your earnest money, which is a deposit credited toward the purchase. Appraisal and credit report fees often come due earlier.
Dollar amounts for these costs vary widely by home price and location, so no single figure applies to every buyer. Your Loan Estimate itemizes them. Gifts, grants and seller help may cover part of the total, within the limits above.
That is why minimum down does not mean minimum cash. A buyer who puts down 3% and spends the rest of their savings on closing can hit the first repair bill with nothing left. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
What Does Mortgage Insurance Do to the Loan?
Mortgage insurance protects the lender if you default, and it is required on conventional loans above 80% LTV. You pay it as part of your monthly cost. Published typical annual premiums run from 0.58% to 1.86% of the loan balance, which is a range, not a quote. Your price depends on your credit score, your LTV and the coverage level. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
On HomeReady and standard 97% loans, coverage can be reduced to 25% for LTVs between 90.01% and 97%, per the FAQ above. That lowers the cost compared with standard coverage levels.
It also ends. Under the Homeowners Protection Act, as the Consumer Financial Protection Bureau explains, you can request cancellation of borrower-paid mortgage insurance when your balance reaches 80% of the home’s original value. You need a good payment history, no second liens, and no decline in value. The servicer must end it automatically at the scheduled 78%, if you are current.
Compare that to the FHA, where insurance can last longer. For a conventional borrower, the insurance is a temporary cost.
Worked Example: 3% Down Versus a Larger Down Payment
Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Take a home priced at 100% of its appraised value. Compare two buyers.
- Buyer A puts down 3%. LTV is 97%. The loan is larger, mortgage insurance applies with reduced coverage, and the monthly cost is higher. Cancellation at 80% is a long way off.
- Buyer B puts down 20%. LTV is 80%. No mortgage insurance applies. The loan is smaller, so the payment is lower, but the buyer needed far more cash. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Buyer A keeps savings in the bank and pays for it every month. Buyer B pays less monthly and has a thinner cushion on day one. Neither is wrong. The right pick depends on how much cash you would have left, how stable your income is, and how soon you expect to build equity.
Appreciation matters too. If the home gains value, your balance can reach 80% of the original value sooner than the schedule alone would suggest. You still need to meet the cancellation conditions.
Where the Rules Bend
The general rule breaks in a handful of named cases. These come up in real files.
- Income above the HomeReady cap. Use the standard 97% option, but at least one borrower must be a first-time buyer.
- Two- to four-unit homes. The maximum is 95% on a primary residence, so the minimum is 5% down.
- Second homes and investment property. Occupancy decides the leverage. Second homes go to 90%.
- Non-occupant co-borrower. A parent can help on HomeReady, but lower LTVs generally apply if that person’s income is used to qualify.
- Manufactured housing. Standard manufactured homes cap at 95%. Fannie Mae’s MH Advantage product can reach 97%.
- Large loans. High-balance loans are not eligible for 97%. A loan above the county conforming limit is a jumbo loan, which sits outside agency rules.
- Community seconds. Combined LTV can run above 100% when a community second mortgage is part of the structure.
- Credit events. The agencies set waiting periods: four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
On credit scores, one recent change confuses people. Fannie Mae removed the fixed 620 minimum for loans run through DU, according to an Orrick summary of the Selling Guide update. DU now weighs a broader risk picture. That does not mean any score gets approved, and manually underwritten loans still have floors. In practice, the wholesale programs Lendmire works with generally start at a 620 decision score, and individual lenders may set their own.
Mistakes That Derail Low-Down Applications
A thin down payment leaves little room for surprises. These slow files down or sink them.
- Unexplained deposits. Large transfers without a source become conditions.
- New credit. Opening a car loan or store card changes your debt ratio mid-file.
- Job changes. Switching to a new employer or pay structure can reset the income review.
- Spending the savings. Draining reserves on furniture before closing can leave you short on cash to close.
- Ignoring the appraisal risk. A low value means more cash or a new deal.
- Skipping the education course. If it is required, the file cannot finish without it.
Think of the period between application and closing as a freeze. Keep your finances as boring as possible.
Is the Minimum Right for You?
It depends on your cash, your income stability and your plans. Minimum down fits a buyer who has steady income, a solid emergency fund after closing, and plans to stay long enough to build equity. It fits less well if the cash you keep is thin, or if the extra monthly cost would strain the budget.
If the file comes back short, you have options. You can raise the down payment with a gift or by waiting, pay down debt to improve your ratio, fix errors on your credit report, or add a co-borrower. Lendmire’s comparison of minimum versus larger down payments walks through the choice. Government-backed loans are another lane worth comparing if conventional does not fit.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
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. Start with its conventional loan programs page.
Key Terms Defined
Loan-to-value (LTV): the loan amount divided by the home’s value, shown as a percentage.
Mortgage insurance: a monthly cost that protects the lender when your down payment is under 20%.
Area median income (AMI): the middle income for the area where the home sits, used for HomeReady’s income limit.
Desktop Underwriter (DU): Fannie Mae’s automated system that reviews your whole file and returns a finding.
Condition: a document or answer the lender still needs before approving the file.
Gift letter: a donor-signed statement that money is a gift, not a loan.
Frequently Asked Questions
Do I have to be a first-time buyer to put 3% down?
No. HomeReady has no first-time-buyer requirement, but your income must be at or below 80% of the area median. The standard 97% option has no income limit but needs at least one first-time buyer. If you fit neither, the usual minimum is 5% down. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Can my family give me the down payment?
Yes, on a primary residence. Gift funds can cover the down payment, closing costs or reserves. The donor signs a gift letter, and you document the transfer. Builders, agents and other interested parties cannot be the donor.
When can I get rid of mortgage insurance?
You can request cancellation when your balance reaches 80% of the original value, if you meet the conditions. The servicer must end it automatically at the scheduled 78% when you are current. Servicer procedures vary, so ask yours what it needs.
Does a low appraisal change my down payment?
It can, because LTV uses the lower of the price and the appraised value, so a low appraisal raises your LTV. If that pushes you over the program maximum, you bring more cash or renegotiate.
Can I use 3% down for a two-unit home or a vacation home?
Not generally. Two- to four-unit primary residences cap at 95% LTV. Second homes go to 90%. Occupancy decides the leverage.
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.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae Eligibility Matrix
2. Fannie Mae FAQs: 97% LTV Options
4. Fannie Mae Selling Guide: Personal Gifts
6. Orrick summary of the Selling Guide update
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Piggyback Second vs Conventional Loan With PMI for a Small Down Payment · Conventional Loan PMI Cancellation Rules and Payment History · Is Refinancing Into a Conventional Loan Worth It?
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
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.