With mortgage rates higher than in previous years and home prices continuing to climb, saving for a down payment can feel overwhelming. But here’s the good news: you don’t need 20% down to buy a home. Some loan programs allow qualified buyers to put down as little as 3%, making homeownership much more accessible.

This guide covers 3% down mortgage options, eligibility requirements, and the pros and cons of these low down payment programs.

What is a 3% Down Mortgage?

A 3% down mortgage lets you finance 97% of a home’s purchase price, reducing the upfront cash needed to buy a home. Conventional loan programs backed by Fannie Mae and Freddie Mac typically offer these low down payment options.

Best 3% Down Mortgage Programs

Conventional 97 Loan (Fannie Mae)

The Conventional 97 loan allows first-time homebuyers to purchase a home with just 3% down. To qualify, at least one applicant must be a first-time buyer (defined as someone who has not owned a home in the past three years). If all applicants are first-time buyers, at least one must complete a homeownership education course.

A minimum credit score of 620 is required, and borrowers must meet conventional debt-to-income guidelines. The home must be a primary residence, and the loan amount must be within conforming loan limits ($806,500 in most areas for 2025, with higher limits in more expensive markets). Private mortgage insurance (PMI) is required but can be removed once 20% equity is reached.

HomeReady Mortgage (Fannie Mae)

Designed for low- to moderate-income buyers, the HomeReady mortgage program offers more flexibility. Unlike the Conventional 97 loan, HomeReady is not limited to first-time homebuyers. However, borrower income cannot exceed 80% of the area median income (AMI).

One unique feature of HomeReady is that rental income can be used to help qualify. Homebuyers can also purchase multi-unit properties (up to four units) as long as they live in one of the units. Additionally, 100% of the down payment can come from gift funds or down payment assistance programs.

Home Possible Mortgage (Freddie Mac)

Similar to HomeReady, Home Possible is another 3% down mortgage option. First-time homebuyers must complete a homeownership education course. A minimum credit score of 660 is required, and income cannot exceed 80% of the AMI.

This program allows for non-occupying co-borrowers, meaning a parent or family member can help with the down payment while the buyer remains the primary occupant. Like other conventional loans, PMI is required but can be removed once 20% equity is reached.

HomeOne Mortgage (Freddie Mac)

HomeOne is a great alternative for borrowers who do not meet income restrictions. There are no income limits, making it an option for higher-earning homebuyers. However, at least one borrower must be a first-time homebuyer, and all first-time buyers must complete a homeownership education course.

Eligible properties include single-unit homes, condos, and townhomes, but manufactured homes are not allowed. The home must be a primary residence, and PMI is required but can be removed once 20% equity is reached.

Pros and Cons of 3% Down Mortgages

Pros

• Easier access to homeownership with a lower down payment
• More cash available for moving expenses, renovations, or emergency savings
• PMI is temporary and can be removed at 20% equity, unlike FHA loans

Cons

• PMI is required, increasing monthly payments
• Less initial home equity, which may impact refinancing options in the future
• Higher total loan cost due to financing a larger portion of the home price

Other Low Down Payment Mortgage Options

If a 3% down mortgage is not the right fit, consider these alternatives:

• FHA Loans – Require a 3.5% down payment with a 580+ credit score (or 10% down with a score as low as 500). Mortgage insurance is required for the life of the loan.
• VA Loans – No down payment required for eligible veterans, active-duty service members, and surviving spouses. No PMI, but a VA funding fee applies.
• USDA Loans – Zero down payment for eligible rural and suburban homebuyers. No PMI, but there is an upfront guarantee fee and annual fee.

How to Get a 3% Down Mortgage

If you are considering a 3% down home loan, follow these steps to get started:

• Check your eligibility – Review income limits and program requirements.
• Improve your credit score – A higher score can help secure a better interest rate.
• Work With A Mortgage Broker – A broker can find you the best rates and terms by shopping 10+ different lenders.
• Explore down payment assistance – Many state and local programs offer grants or low-interest loans.
• Get pre-approved – A pre-approval letter strengthens your offer when house hunting.

Is a 3% Down Loan Right for You?

A 3% down mortgage can help first-time homebuyers achieve homeownership without waiting years to save for a large down payment. While PMI and higher loan balances are considerations, these programs offer an affordable path to buying a home.

If you’re ready to explore your mortgage options, contact us today to find the best low down payment loan for your needs.

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