You don’t always need to save 20% for a down payment when you buy a home.
A conventional 97 loan allows you to put down as little as 3%, and it can be a useful option for buyers who have steady income and qualifying credit.
In a Nutshell
A conventional 97 loan lets you finance up to 97% of a home's value, which means you may be able to buy with as little as 3% down.
There isn't just one conventional 97 program. Fannie Mae and Freddie Mac offer several 3% down options, including Standard 97%, HomeReady®, Home Possible® and HomeOne®. The right fit can depend on your income, whether you're a first-time homebuyer and other eligibility requirements.
How Does a 3% Down Conventional Loan Work?
A 97% LTV mortgage means you borrow up to 97% of the home's purchase price or appraised value, depending on the transaction and applicable rules. You provide the remaining 3% as a down payment.
For example, if you purchase a $300,000 home:
Home price: $300,000
3% down payment: $9,000
Mortgage amount before other adjustments: $291,000
However, your down payment isn’t the only cash you’ll need to purchase a house. You'll also need to account for closing costs, prepaid property taxes and homeowners insurance, and other expenses that may be due at closing.
The advantage of a smaller down payment is that you don't have to tie up as much cash in your home immediately. That can leave more money available for moving expenses, repairs or an emergency fund. The tradeoff is that you'll begin homeownership with less equity and a larger mortgage balance. You'll also usually have to pay private mortgage insurance (PMI). PMI protects the lender if you don't repay the loan as agreed and adds to the cost of a conventional mortgage.
Conventional 97 Loan Requirements
Although requirements vary by program, lenders generally review:
Credit history and credit profile: Your credit history helps determine whether you meet the applicable underwriting requirements and can affect your mortgage pricing.
Income and employment: Lenders verify your income and employment history to help determine whether you can reasonably afford the mortgage payment.
Debt-to-income ratio (DTI): DTI compares your monthly debt payments with your gross monthly income. A lower DTI can make it easier to qualify, although the applicable maximum depends on the program and underwriting findings.
Property eligibility: The home must meet the requirements for the particular loan program.
Occupancy: A primary residence is a home you intend to live in as your main home.
Conforming loan limits: The mortgage generally must fall within applicable conforming loan limits for the property's location.
Some first-time homebuyer situations also require homeownership education. For example, Fannie Mae's 97% LTV options can require education when all occupying borrowers are first-time buyers, and Freddie Mac's HomeOne® has an education requirement when all borrowers are first-time homebuyers.
Because program guidelines can change, your lender should verify the current requirements for the specific loan you're considering.
Types of Conventional Loans With 3% Down
There are four major conventional options to consider when you're looking for 3% down financing.
All four can provide low-down-payment financing, but they have different requirements related to income, first-time homebuyer status, property type and underwriting.
Fannie Mae Standard 97%
Fannie Mae's Standard 97% option allows eligible buyers to put as little as 3% down. At least one borrower generally must be a first-time homebuyer, but there isn't a program-specific income limit.
That can make Standard 97% worth exploring if you're a first-time buyer but earn too much to qualify for an income-restricted option such as HomeReady®.
Fannie Mae HomeReady®
HomeReady® loans also allow as little as 3% down, but you don't have to be a first-time homebuyer. Instead, the program generally limits qualifying income to 80% of the area's median income (AMI).
HomeReady also offers flexibility around eligible sources for your down payment and closing costs, including gifts, grants and certain secondary financing.
Freddie Mac Home Possible®
Home Possible® loans are another 3% down option for eligible buyers whose qualifying income generally doesn't exceed 80% of the area's median income.
You don't necessarily need to be a first-time buyer, and eligible funding sources can include gifts, grants, employer assistance and certain secondary financing.
Freddie Mac HomeOne®
HomeOne® loans lets eligible first-time buyers to put as little as 3% down without a borrower income or geographic limit.
That can make HomeOne® an option to explore if you're a first-time buyer whose income is too high for HomeReady® or Home Possible®.
Conventional 97 vs. HomeReady® vs. Home Possible® vs. HomeOne®
The programs can sound similar, so here's a simpler way to compare the biggest differences:
| Program | Allows 3% Down Payment | First-Time Buyer Status | Income Limit | May Be a Fit If... |
|---|---|---|---|---|
| Standard 97% | Yes | At least one borrower | None | You're a first-time buyer and don't meet an income-based program's limits |
| HomeReady® | Yes | No | Generally 80% of AMI | You meet the income limit and want a flexible 3% down option |
| Home Possible® | Yes | No | Generally 80% of AMI | You meet the income limit and may benefit from flexible funding sources |
| HomeOne® | Yes | At least one borrower | None | You're a first-time buyer without an income-based program available to you |
You don't need to figure out which program fits you on your own. A lender can review the options you qualify for and help you compare the upfront costs, monthly payment and other differences.
How Much Does 3% Down Actually Cost?
A 3% down payment will be different depending on the purchase price of your home. Here are some examples:
| Home Price | 3% Down Payment |
|---|---|
| $200,000 | $6,000 |
| $300,000 | $9,000 |
| $400,000 | $12,000 |
| $500,000 | $15,000 |
These figures represent the down payment only, not the total amount you'll need at closing.
Closing costs, prepaid taxes and insurance, inspections, moving expenses and other costs can add to your cash needs. Before buying, consider leaving money available for repairs and an emergency fund rather than using every dollar you have for the down payment.
Eligible programs may also allow gifts, grants or other assistance to help with some upfront costs, subject to program requirements.
Pros and Cons of Putting 3% Down
| Pros | Cons |
|---|---|
| Requires less cash upfront | PMI generally increases the monthly payment |
| May allow you to buy sooner | You start with less equity |
| Helps preserve savings for emergencies or repairs | You borrow more money |
| Some programs allow gifts, grants or other assistance | A larger loan balance can mean more interest over time |
| Conventional PMI may eventually be canceled | The lowest down payment isn't necessarily the lowest-cost option overall |
Putting 3% down isn't automatically better than putting 5%, 10% or 20% down. A larger down payment can reduce your loan balance and may lower your monthly costs. The right choice depends on your savings and how the different loan scenarios affect your monthly and long-term costs.
Conventional 97 vs. FHA Loans
Buyers considering a 3% down conventional loan often compare conventional financing with an FHA mortgage. FHA loans can offer down payments as low as 3.5% and are insured by the Federal Housing Administration. FHA financing may also have more flexible credit requirements.
The major difference is how mortgage insurance works. Conventional loans with less than 20% down generally require PMI, while FHA loans typically require an upfront mortgage insurance premium (MIP) as well as ongoing mortgage insurance.
Neither option is universally better. To compare, look at the amount you'll need at closing, your interest rate, monthly payment, mortgage insurance, eligibility requirements and expected long-term cost.
How to Get a Conventional Loan With 3% Down
If you're interested in low-down-payment conventional financing, start with these steps:
Check your basic eligibility. Review your credit, income, debts and available savings.
Gather your financial documents. Your lender will typically need information about income, employment, assets and debts.
Get preapproved. A preapproval can help you understand your potential price range and estimated payment.
Ask about all 3% down options. There may be more than one option.
Tell your lender if you're a first-time buyer. Your first-time buyer status can affect which programs are available.
Ask whether you meet an income-based program. If your income is within the applicable limit, HomeReady® or Home Possible® may provide additional options.
Compare loan scenarios. Look at the down payment, closing costs, interest rate, PMI, monthly payment and long-term cost.
The goal isn't simply to find the mortgage with the smallest down payment. It's to find a loan that fits your budget while leaving you enough financial flexibility to handle the costs of homeownership.
Frequently Asked Questions
Emily Kittle is an experienced underwriter with a strong background in risk assessment, training, and loan decision-making. She excels at solving complex mortgage challenges and guiding loans to closing using creativity and critical thinking.