Key Takeaways
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3% down mortgages provide an affordable path to homeownership, especially for first-time buyers.
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Programs like Conventional 97, HomeReady, and Home Possible cater to different income levels and homeownership needs.
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PMI is required but can be removed after reaching 20% home equity.
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Buyers should compare loan options, improve credit scores, and explore down payment assistance programs to get the best deal.
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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.
FAQs: About 3% Down Mortgages
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