What the lowest conventional down payment actually is

The lowest down payment for a conventional mortgage — a loan from a bank or lender, not backed by the federal government — is 3 percent of the home's purchase price. If you are buying a home for $300,000, a 3 percent down payment is $9,000. You borrow the remaining $291,000.

This 3 percent floor applies to owner-occupied homes, meaning you plan to live there. Investment properties and second homes have higher minimums, usually 15 to 25 percent. The 3 percent rule comes from lender guidelines, not law — individual lenders may require more, but none can legally require less for a primary residence.

The catch is that putting down less than 20 percent triggers private mortgage insurance, or PMI. This is an extra monthly cost added to your mortgage payment. It protects the lender if you stop paying, but you are the one who pays for it. PMI typically costs 0.5 to 1.5 percent of your loan amount per year, divided into monthly payments.

Key Takeaways

  • Conventional mortgages allow down payments as low as 3 percent, but anything below 20 percent requires you to pay private mortgage insurance each month.
  • PMI is not a one-time fee — it stays on your loan until you have paid down the balance to 80 percent of the home's original value or refinance.
  • Your credit score, debt-to-income ratio, and savings history all affect whether a lender will offer you the 3 percent option or require more down.
  • Putting down 3 percent lets you buy sooner with less upfront cash, but costs more over time because of PMI and a larger loan balance.
  • Some lenders offer first-time homebuyer programs with 3 percent down and reduced PMI rates, though these have income or purchase price limits.

How PMI works and what it costs you monthly

When you put down less than 20 percent, the lender requires PMI as a condition of the loan. The insurance company (not the lender) is paid to cover the lender's loss if you default. But the premium comes out of your pocket, added to your regular mortgage payment.

The cost depends on three things: how much you borrowed, your down payment size, and your credit score. A borrower with a 3 percent down payment and a 680 credit score pays more than someone with a 10 percent down payment and a 740 score. PMI rates vary by lender and insurer, so shopping around matters. On a $300,000 home with 3 percent down ($9,000), PMI might add $150 to $250 per month, though this varies widely based on your credit and the specific loan.

PMI stays on your loan until your balance reaches 80 percent of the home's original purchase price. If you bought for $300,000 and put down 3 percent, you owe $291,000. You stop paying PMI once you have paid that down to $240,000 (80 percent of $300,000). Depending on your payment schedule, this can take 8 to 12 years — or longer if you make only minimum payments.

Who qualifies for a 3 percent down payment

Lenders do not have to offer 3 percent down to everyone. They set their own rules within the conventional mortgage framework. Most require a credit score of at least 620, though 640 or higher improves your odds and lowers your PMI rate. They also look at your debt-to-income ratio — the total of all your monthly debt payments divided by your gross monthly income. Most lenders want this below 43 percent, meaning if you earn $5,000 a month, your debts (including the new mortgage) should not exceed $2,150.

Lenders also verify that you have saved the down payment yourself and can document where the money came from. They want to see bank statements, pay stubs, and tax returns. If you received a gift from a family member, most lenders allow it, but you will need a signed letter from the gift-giver stating it does not need to be repaid.

First-time homebuyers sometimes have access to special programs. Some lenders offer conventional loans with 3 percent down and slightly lower PMI rates if you complete a homebuyer education course. State housing finance agencies also run programs that combine a conventional mortgage with a down payment grant or a second loan to cover part of the down payment. These vary by state and often have income limits.

3 percent down versus larger down payments

Putting down 3 percent gets you into a home faster and preserves cash for emergencies or home repairs. It is the path for people who have saved enough for a down payment but not 20 percent. The tradeoff is that you pay PMI for years and carry a larger loan balance, which means more interest over the life of the mortgage.

A 10 percent down payment eliminates some of the PMI burden — the premium is lower because the lender's risk is smaller. You still pay PMI, but for fewer years. A 20 percent down payment eliminates PMI entirely, lowering your monthly payment and total interest paid, but requires you to save twice as much upfront.

The math depends on your situation. If you are paying rent and could buy now with 3 percent down, or wait two years to save 20 percent, the rent you pay during those two years is money that does not build equity. If you can afford the PMI and the higher monthly payment, buying sooner may make sense. If you have the 20 percent saved and rates are favorable, waiting to avoid PMI usually costs less overall.

How to remove PMI from your loan

PMI comes off automatically once your loan balance reaches 80 percent of the home's original purchase price. The lender is required by law to tell you when this will happen and to remove it without you asking. However, you can also request removal earlier if you have paid the balance down faster than expected or if your home has appreciated significantly.

To request early removal, you typically need to have paid the loan down to 80 percent of the original purchase price, have made all payments on time, and have no second mortgage. You will need to order an appraisal to prove the home is worth more than you owe. If the appraisal supports it, the lender can remove PMI. This costs $300 to $500 for the appraisal, but if you are close to 80 percent, it may be worth it to stop paying PMI sooner.

Refinancing is another route. If your credit score has improved or rates have dropped, you can refinance to a new loan with a higher down payment (using your home equity). If the new loan is for 80 percent or less of the home's current value, PMI is not required. Refinancing has closing costs, usually 2 to 5 percent of the loan amount, so run the numbers to make sure the savings justify the cost.

Down payment information programs and alternatives

If 3 percent down still feels out of reach, several programs exist. State housing finance agencies offer down payment grants or second mortgages in most states. These are not loans you repay — they are grants that reduce the amount you need to save. may be able to access usually depends on income, first-time homebuyer status, and the purchase price of the home. Search your state's name plus "housing finance agency" to find the program.

Employer programs are another source. Some large employers offer down payment grants or forgivable loans to employees buying a home. Check with your HR department. Nonprofits and community development organizations in your area may also run programs, especially if you are a first-time buyer or have a lower income.

Family gifts are allowed on conventional mortgages, as long as you document them. If a relative can gift you part of the down payment, the lender will require a signed letter stating the money is a gift and does not need to be repaid. This does not affect your debt-to-income ratio the way a loan would.

What happens if you cannot put down 3 percent

If 3 percent down is still too much, you have limited options within conventional mortgages. Some lenders offer 2 percent down programs, but these are rare and usually only for borrowers with excellent credit and strong income. Most lenders will not go below 3 percent.

Federal loan programs have different rules. FHA loans (backed by the Federal Housing Administration) allow down payments as low as 3.5 percent and accept lower credit scores, but they require mortgage insurance for the life of the loan, not just until you reach 80 percent equity. VA loans (for military members and veterans) and USDA loans (for rural areas) allow zero down payment but have their own may be able to access requirements and insurance costs.

If you are not ready to buy, continuing to save and build your credit score is often the best move. A higher credit score lowers your PMI rate and may open access to better loan terms. Paying down existing debt improves your debt-to-income ratio, making you a stronger candidate for approval.

Frequently Asked Questions

Can I use a gift from a family member for my down payment?

Yes. Most lenders allow down payment gifts from family members, but you will need a signed letter from the gift-giver stating the money is a gift and does not need to be repaid. The lender will verify the gift with bank statements showing the transfer. The gift does not count as income or debt, so it does not affect your debt-to-income ratio.

How long does PMI stay on my loan?

PMI stays until your loan balance reaches 80 percent of the home's original purchase price. The lender must remove it automatically at that point. If you pay faster or your home appreciates, you can request early removal by ordering an appraisal. Refinancing to a higher down payment is another way to eliminate PMI sooner.

Is a 3 percent down payment a good idea if I have the money for more?

It depends on your situation. If you need to keep cash for emergencies, a home repair fund, or other goals, 3 percent down preserves liquidity. If you have 20 percent saved and rates are stable, putting down 20 percent avoids PMI and lowers your total interest. Run the numbers with a lender to compare the monthly payment and total cost over time.

What credit score do I need for a 3 percent down conventional mortgage?

Most lenders require a minimum credit score of 620, but 640 or higher improves your chances of approval and lowers your PMI rate. Your score affects not just whether you are approved, but how much you pay each month. Building your credit before explore can save you thousands over the life of the loan.

Can I put down less than 3 percent on a conventional mortgage?

Conventional mortgages rarely go below 3 percent. Some lenders offer 2 percent programs for borrowers with excellent credit, but these are uncommon. If you cannot save 3 percent, FHA loans allow 3.5 percent down, and VA or USDA loans allow zero down if you meet their requirements.