02 What you need to know
Which conventional loans allow 3% down
Putting 3% down means borrowing 97% of the home’s value, a 97% LTV (loan-to-value ratio). Fannie Mae and Freddie Mac each have paths to get there.
| Program | First-time buyer required? | Income limit? |
|---|---|---|
| Fannie Mae standard 97% LTV | Yes, at least one borrower | No |
| Fannie Mae HomeReady | No | Yes, generally at or below 80% of area median income |
| Freddie Mac Home Possible | No | Yes, generally at or below 80% of area median income |
| Freddie Mac HomeOne | Yes, at least one borrower | No |
A first-time homebuyer generally means someone who hasn’t owned a home in the past three years, so a past owner may still count. See how first-time buyer is defined.
Rules that apply to 3% down
- Property: a 1-unit home you’ll live in as your primary residence. Condos can work if the project is eligible.
- Loan type: generally a fixed-rate loan.
- Loan size: the loan must fit within the baseline conforming limit. Higher “high-balance” limits in costly counties like Los Angeles aren’t eligible at 97%. The limit changes every year, so check FHFA’s current number.
- Education: when all borrowers are first-time buyers, at least one usually must complete a homeownership education course before closing.
- Credit and DTI: you still need to meet credit score and DTI (debt-to-income ratio) requirements, usually through automated underwriting.
PMI comes with it
At 97% LTV you’ll pay private mortgage insurance (PMI), and it costs more at higher LTVs. HomeReady and Home Possible allow reduced coverage, which can lower that cost. Conventional PMI can be removed later. See when PMI comes off.
03 Real-world example
What 3% down looks like on a $750,000 purchase
| Cash item | Amount |
|---|---|
| Down payment (3%) | $22,500 |
| Closing costs: lender, title, escrow, recording | Varies, see your Loan Estimate |
| Prepaids: interest, insurance, property tax impounds | Varies |
| Reserves the lender may require after closing | Varies by findings |
| Cash needed | $22,500 + costs not covered by credits or gifts |
Assumptions: illustration only. The $727,500 loan must be at or below the current baseline conforming limit, which you should confirm on FHFA’s site, and you must meet the program’s first-time buyer or income rules. The seller credit limit is 3% of the lower of price or appraised value when LTV is above 90%. This example does not mean any specific deal qualifies.
Want real closing cost estimates? Run the Loan Estimate calculator.
04 What most people overlook
What buyers overlook about 3% down
3% down is not 3% cash to close
Your down payment is only one piece. Closing costs, prepaid items, and any required reserves come on top. On a $750,000 home, that can add a meaningful amount beyond the $22,500.
Other money can cover the rest
- Seller credits. On conventional loans above 90% LTV, interested-party contributions are generally limited to 3% of the price or appraised value, whichever is lower. They can pay closing costs and prepaids, but not your down payment.
- Gift funds. On a 1-unit primary residence, conventional guidelines generally allow the full down payment to come from an acceptable family donor. See how to document gift money.
- Down payment assistance may be layered in through approved programs, subject to their own rules.
Price range and loan size are linked
In Los Angeles, the baseline limit can cap your price at 3% down. If the loan would land above it, you may need more down, or a different program such as FHA.
The question isn’t just “can I put 3% down.” It’s which program you fit, how big the loan can be, and how much total cash you need on closing day.
05 How I’d approach it
How I set up a 3% down purchase
3% down works best when we plan the whole cash picture, not just the down payment.
I start with three checks: whether anyone on the loan has owned a home in the past three years, your household income against the area median for the property’s location, and your target price against the baseline conforming limit.
- That tells me which of the four programs you fit, if any.
- I compare PMI quotes for each eligible program, because reduced coverage can change the payment.
- I build a full cash-to-close estimate and decide how much to request in seller credits.
- I line up homebuyer education early so it never holds up closing.
If 3% down doesn’t fit, I compare it with FHA and with 5% down conventional so you can see the trade-offs side by side.