What Are 3% Down Mortgages?

What Is a 3% Down Mortgage?

A 3% down mortgage is just that: a conventional home loan that allows you to purchase a home by putting down just 3% of its purchase price. It's a great option for those who can afford the monthly mortgage and other costs of homeownership but find it difficult to save for a larger down payment.

Example: Let's say you found the perfect starter home for $350,000. You'll need to come up with $70,000 for the recommended 20% down payment. Even if you qualify for a conventional loan that only requires a 5% down payment, you'd still need $17,500.

In either scenario, it might take a long time to save up enough money, and by that time, home prices may have gone up or inventory of desirable properties may have gone down. By contrast, a 3% down payment would only be $10,500, a far more reachable goal for most buyers.

Learn more: Should You Put Down 20% on a Home?

Who Qualifies for a 3% Down Mortgage?

A 3% down mortgage is usually available through conventional loan programs, which have their own rules. However, many of these programs share the following core requirements:

• First-time homebuyer: In most cases, you must not have owned a home within the previous three years to qualify as a first-time homebuyer.
• Primary home: You must plan on living in the financed home year-round, as these programs are intended for primary residences, not rental properties.
• Minimum credit score: You'll likely need a minimum credit score of 620 or higher to qualify for many low-down-payment programs, including Conventional 97, HomeReady and Home Possible mortgages (more on these below). Your credit report should also be free from recent foreclosures, bankruptcies or serious delinquencies.
• Maximum debt-to-income ratio: Lenders want to see low credit balances relative to your income because it shows you manage debt responsibly. Aim for a debt-to-income ratio (DTI) below 43%, meaning your total monthly debts represent less than 43% of your monthly gross income.
• Stable income and employment: Lenders will review your employment and income history to assess your long-term ability to make your mortgage payments on time. Be ready to supply recent pay stubs, W-2s or income tax returns to your lender as proof of income.
• Loan limits: Under these low down payment programs, lenders won't approve mortgages for more than conforming loan limits allow, which is $806,500 for 2025 in most areas.

Types of 3% Down Mortgages

The Federal Reserve Bank of St. Louis reports the median home price for new houses in the United States is now $414,500. That makes it tough to save for a traditional down payment, but 3% down conventional loan programs like those below may lower the barrier to buying a home. There are a few types of 3% down mortgages available.

Conventional 97

Conventional 97 home loans are fixed-rate mortgages you may qualify for with just 3% down to finance the remaining 97%. There are no income limits to qualify, but you must be a first-time homebuyer, meet the other requirements mentioned above and complete a homebuyer education course.

As with other low-down-payment programs, you'll need to pay private mortgage insurance (PMI) since the down payment is below 20%. But unlike a Federal Housing Administration (FHA) loan, you can stop making mortgage insurance payments once you've built up 20% equity in your home. Still, you may pay higher interest rates and face tougher lending criteria since the loan isn't backed by the government.

Fannie Mae's HomeReady Program

This type of conventional loan is offered through Fannie Mae lenders and is designed to help borrowers who make 80% or less of the area median income (AMI).

If you put down less than 10%, you'll need 25% PMI coverage which will slightly increase your monthly payment. However, if your down payment exceeds 10%, the PMI requirement drops below 25% and follows standard guidelines. The 25% coverage means your mortgage insurance protects the lender for up to 25% of the loan amount if you stop making payments. But that doesn't affect when you can cancel it; you can still request to remove mortgage insurance once you've built at least 20% equity in your home.

You don't have to be a first-time homebuyer to qualify, but if you are, you must take a short homeownership education course.

Tip: Fannie Mae offers an Income Eligibility tool to help you determine if your income falls within HomeReady program parameters.

Freddie Mac's HomePossible Program

Freddie Mac offers this program to reduce the down payment to 3% and make it easier to get into a home. To qualify, your income must be no more than 80% of the area median income, but you can count gifts, employer assistance or even sweat equity as income to help meet that requirement. The program can help you finance various property types, including single-family homes, condominiums, manufactured homes and multiple-unit properties (up to four units).

The loan allows for a loan-to-value ratio of up to 97%, and in some cases, even higher when paired with approved second loans.

Learn more: Rules for Giving and Receiving Home Down Payment Gifts

Pros and Cons of a 3% Down Mortgage

A 3% down mortgage can help you overcome a common barrier to homeownership, but it's essential to consider the benefits and downsides before making a decision.

Should You Get a 3% Down Mortgage?

You might consider a 3% down mortgage if you're a first-time homebuyer who might qualify for a loan but doesn't have enough saved for a larger upfront payment. With a lower down payment, however, you'll have higher monthly payments and pay more in interest and insurance over the life of the loan.

However, this type of mortgage may be too risky if your income is unpredictable or your finances are already strained. You might qualify for the mortgage but struggle to keep up with payments over time. In that case, saving a bit more—say a 5% or 10% down payment—could help you get better rates and reduce your overall costs. Since your home serves as collateral, it's important to make sure your long-term finances are strong enough to handle the payments comfortably.

Learn more: Does Your Down Payment Affect Your Monthly Loan Payments?

To see what monthly payments might look like with a 3% down mortgage, use a mortgage calculator. It helps to have an idea of the price you want to pay on the house as well as what interest rate you might qualify for.

Mortgage calculator

How to Apply for a 3% Down Mortgage

The process to obtain a 3% down mortgage is relatively straightforward, but there are some steps that can help you get the best deal possible.

• Strengthen your credit score. Approval for a 3% down mortgage will rely heavily on your creditworthiness, so it's a good idea to strengthen your score as much as possible before applying. You may qualify for many programs with a score of 620 or higher, but you're more likely to secure better rates with a score in the good to excellent range (670 to 850).
• Shop around for lenders. Not all lenders offer 3% down payment mortgage options, and the ones that do may differ in their terms, fees and eligibility criteria. Get quotes from a few different lenders to see which lenders provide the best loan option for your needs.
• Explore down payment assistance. Check your state housing finance agency's website or talk to your lender about state and local programs you may qualify for. A housing counselor approved by the Department of Housing and Urban Development (HUD) can help you find and apply for various federal programs.
• Get preapproved. A preapproval is essential to show home sellers you're a serious buyer in a competitive housing market. It can also help you identify any qualifying issues early on so you can fix them before applying.
• Submit your mortgage application. Once you've chosen a lender and are confident you'll meet their approval guidelines, fill out the formal mortgage application to begin the process. Be ready to reply to the lender's request for supporting documents, including proof of income, identity and bank statements.
• Prepare for closing. Upon approval, review the loan documents to make sure the final loan terms reflect what you've agreed to. Once you're satisfied, sign the final papers to fund the loan and get the keys to your new home.

Learn more: The Complete Guide on How to Get a Mortgage

Alternatives to a 3% Down Mortgage

If you're not keen on a 3% down conventional mortgage, you might take a look at these government-backed loans that require little or no down payment.

• FHA loans: These loans are insured by the Federal Housing Administration and offer down payment options as low as 3.5% if your FICO^® Score^☉ is 580 or higher. You may still qualify for an FHA loan even if your score falls below this threshold, but you'll need to put at least 10% down.
• VA loans: The U.S. Department of Veterans Affairs partially guarantees these loans, which are typically provided through private lenders. VA loans enable eligible veterans and service members to buy a home with no down payment. They often come with lower closing costs and better rates than conventional loans.
• USDA loans: A U.S. Department of Agriculture (USDA) mortgage also doesn't require a down payment and most lenders require a 640 or higher credit score. The home must be in a qualifying area and used as your primary residence, along with meeting other program requirements.

Learn more: Types of No or Low Down Payment Mortgages

Frequently Asked Questions

Good Credit May Lower the Overall Cost of Your Mortgage

With a lower upfront payment, a 3% down mortgage can help you achieve homeownership sooner, but your monthly payments and interest costs will likely be higher than if you put more money down.

One way to offset those higher costs is by qualifying for a better interest rate, which starts with good credit. Maintaining a solid credit score can improve your odds of approval with lower rates and, consequently, more affordable monthly payments. Before applying for a mortgage, check your FICO^® Score and credit report for free to see where your credit stands. You'll be able to identify the factors affecting your score and spot potential issues on your report that might be dragging it down.