Conventional mortgages now allow down payments as low as 3 percent, though most lenders require 5 percent and some still ask for 10 percent or more.

The difference between 3 and 5 percent matters most on a $300,000 home: 3 percent is $9,000, while 5 percent is $15,000. That gap often decides whether a buyer can close or has to wait. But the lowest down payment available to you depends on your credit score, debt-to-income ratio, the property type, and which lender you approach — not all of them offer 3 percent programs.

When you put down less than 20 percent, you also pay private mortgage insurance (PMI), a monthly fee that protects the lender if you stop paying. That cost varies by lender and your down payment size, but typically runs 0.5 to 1.5 percent of your loan amount per year. Understanding both the down payment floor and the PMI cost is how you figure out what you can actually afford.

Key Takeaways

  • Conventional loans with 3 percent down are available but not from every lender, and usually require a credit score of 620 or higher and a debt-to-income ratio below 43 percent.
  • Private mortgage insurance is mandatory when you put down less than 20 percent and adds $150 to $300 per month to your payment on a typical loan.
  • A 5 percent down payment is more widely available than 3 percent and often comes with lower PMI rates and fewer restrictions on property type or loan amount.
  • Your actual lowest down payment depends on your credit score, income, debts, and the specific lender — shopping multiple lenders can reveal options your first choice does not offer.

How 3 Percent Down Mortgages Work

A 3 percent down conventional loan means you borrow 97 percent of the home's purchase price. Fannie Mae and Freddie Mac, the government-backed entities that buy mortgages from lenders, allow this structure, but individual lenders set their own rules about who qualifies. Most require a credit score of at least 620, though 640 or higher is more common in practice. Your debt-to-income ratio — the total of all your monthly debt payments divided by your gross monthly income — usually cannot exceed 43 percent, and some lenders cap it at 40 percent.

The 3 percent program typically comes with stricter limits than a 5 percent down loan. You may not be able to use it on investment properties, second homes, or cash-out refinances. Some lenders require you to have cash reserves equal to two months of mortgage payments after closing. The property itself must meet certain standards: it cannot be a condo in a complex where too many units are investor-owned, and it cannot be a manufactured home.

Because the lender is taking more risk with a smaller down payment, the interest rate on a 3 percent loan is often slightly higher than on a 5 or 10 percent loan — sometimes 0.25 to 0.5 percent higher. That difference compounds over 30 years. On a $300,000 loan, 0.5 percent higher interest means roughly $50 more per month.

Private Mortgage Insurance and Its Real Cost

PMI protects the lender, not you. If you default, PMI covers part of the lender's loss. You pay for it, but you never see the benefit. The cost depends on three things: your down payment percentage, your credit score, and your loan amount. A borrower with a 620 credit score putting 3 percent down pays more PMI than a borrower with a 740 score putting 5 percent down.

On a $300,000 loan at 3 percent down with a 680 credit score, PMI typically runs $200 to $280 per month. At 5 percent down with the same credit score, it might be $140 to $200 per month. That $80 monthly difference is real money over the life of the loan — $28,800 over 30 years, before accounting for interest on the PMI itself.

PMI stays on your loan until you reach 20 percent equity through a combination of payments and home value appreciation. If you bought with 3 percent down, that takes roughly 15 to 17 years of on-time payments, assuming your home value does not drop. You can request removal once you hit 20 percent equity, but the lender does not remove it automatically — you have to ask and often provide a new appraisal to prove the home's current value.

5 Percent Down: The More Common Low-Down-Payment Option

A 5 percent down conventional loan is more widely available than 3 percent and often comes with fewer restrictions. Most lenders offer it to borrowers with credit scores as low as 620, though 640 is more typical. The debt-to-income cap is usually 43 to 50 percent, depending on the lender. You can use a 5 percent loan on investment properties and second homes, which you often cannot do with 3 percent.

The PMI cost is lower because you are borrowing less relative to the home's value. On that same $300,000 purchase with a 680 credit score, 5 percent down typically means $140 to $200 per month in PMI versus $200 to $280 at 3 percent. The interest rate is also usually lower on a 5 percent loan than a 3 percent one, sometimes by 0.25 percent or more.

Because 5 percent down is more standard, you will find it at nearly every lender. If you are shopping for a mortgage, 5 percent is a good baseline to compare against. Some lenders advertise 3 percent to attract attention, but when you actually apply, you may find that 5 percent is what they can actually offer you based on your specific situation.

Credit Score and Debt-to-Income Ratio Matter More Than Down Payment Alone

A lender does not look at your down payment in isolation. They look at your credit score, your debt-to-income ratio, your employment history, and the size of your cash reserves. A borrower with a 750 credit score and a 35 percent debt-to-income ratio might get a 3 percent loan with a lower interest rate than a borrower with a 640 score and a 42 percent ratio, even though both are technically within the lender's guidelines.

Your credit score affects not just whether you may have access to, but the interest rate you receive. A 100-point difference in credit score can mean 0.5 to 1 percent higher interest, which on a $300,000 loan translates to $100 to $200 more per month. That is often a bigger cost than the difference between 3 and 5 percent down.

If your credit score is below 640 or your debt-to-income ratio is above 43 percent, some lenders will decline you for a conventional loan altogether. Others will offer you a loan but at a higher interest rate. Before you focus on squeezing down to 3 percent, check your credit report for errors and pay down high-balance credit cards to lower your debt-to-income ratio. Those moves often save you more money than the down payment percentage does.

Comparing Down Payment Options Across Lenders

Not all lenders offer the same down payment minimums. A large national bank might require 5 percent, while a credit union or mortgage broker might offer 3 percent. The only way to know what you actually may have access to for is to get a pre-qualification or pre-approval from multiple lenders. This is free and does not lock you into anything.

When you compare lenders, ask for the same loan scenario from each one: the same home price, the same down payment, the same loan term. Ask for the interest rate, the PMI cost, and any fees. A lender offering 3 percent down but charging a higher interest rate and higher PMI might cost you more over time than a lender offering 5 percent down at a lower rate.

Some lenders also offer down payment assistance programs through nonprofits or state housing agencies. These programs sometimes provide grants or second mortgages that cover part of your down payment, effectively lowering your out-of-pocket cost. Your mortgage broker or loan officer can tell you whether you meet the income limits for these programs in your state.

When a Larger Down Payment Makes Financial Sense

Putting down more than the minimum is not always the right move, but sometimes it is. If you have the cash and your interest rate is high, paying 10 or 15 percent down instead of 3 percent can lower your interest rate enough to offset the opportunity cost of using that cash now instead of investing it.

Putting down 20 percent eliminates PMI entirely, which saves you $150 to $300 per month on a typical loan. If you can reach 20 percent without stretching your budget, that is often worth doing. But if reaching 20 percent means you have no emergency fund left, or you are carrying high-interest credit card debt, it is usually better to put down 3 or 5 percent and keep your cash liquid.

The math depends on your specific situation: your interest rate, your credit score, your emergency fund size, and your other debts. A mortgage calculator can show you the total cost of different down payment scenarios, but the real question is whether you can afford the monthly payment and still have money left over for emergencies and other goals.

Frequently Asked Questions

Can I get a conventional loan with less than 3 percent down?

No. Three percent is the lowest down payment Fannie Mae and Freddie Mac allow on a conventional mortgage. If you cannot put down 3 percent, you would need to look at FHA loans, which allow 3.5 percent down, or VA loans if you are a veteran.

Does PMI ever go away on its own?

No. PMI stays on your loan until you reach 20 percent equity and request removal. You have to ask your lender to remove it — they will not do it automatically. Once you hit 20 percent equity, you can request removal by providing proof of the home's current value, usually through a new appraisal.

Is a 3 percent down loan a bad idea because of PMI?

Not necessarily. If you cannot save 5 or 10 percent down, 3 percent lets you buy now instead of waiting years to save. The PMI cost is real, but so is the benefit of building equity instead of paying rent. Compare the total monthly cost — mortgage plus PMI plus taxes and insurance — to what you would pay in rent to decide what makes sense for you.

Will my interest rate be higher with 3 percent down than 5 percent?

Usually, yes, but not always. It depends on the lender and your credit score. Some lenders charge the same rate for 3 and 5 percent down. Always ask for rate quotes at multiple down payment levels from the same lender so you can see the actual difference.

Can I use a gift for my down payment?

Yes, but the lender needs documentation. You will need a letter from the person giving you the money stating that it is a gift and not a loan you have to repay. The lender will verify the gift came from the donor's bank account. Most lenders allow gifts from family members but not from the seller or the real estate agent.