Conventional Loan Down Payment Requirements

Coming up with a down payment is one of the biggest hurdles for many prospective homebuyers. But saving is even more difficult when you don't know how much you will need. However, figuring it out is pretty straightforward if you plan to apply for a conventional loan.

Article Overview

• If you're a first-time homebuyer or earn 80% or less of your area's median income, you can get a conventional loan with a down payment of just 3%. Otherwise, expect to need at least 5% down.

• A larger down payment will reduce your monthly payments and the cost of your private mortgage insurance.

• With 20% down, you can eliminate PMI altogether.

How Much Do You Have to Put Down for a Conventional Loan?

The average borrower will need a conventional loan down payment that's between 3% and 5% of their property's purchase price. To put this into perspective, this would be $7,500 or $12,500 for a $250,000 home. Additionally, there are many scenarios where your down payment requirement figure could be even higher.

The amount you have to put down for a conventional loan will depend on your purchase price and the down payment percentage you qualify for.

Here's a chart showing the required down payments at various home values for 3% and 5% down borrowers. We've also included the amount of a 10% and 20% down payment for each price point.

Primary Residences

First-time buyers and those who earn 80% or less of their area's median income are eligible to get a conventional loan on a single-family primary residence with as little as 3% down. Borrowers who do not qualify under these first-time and lower-income programs must have 5% down.

When purchasing a $300,000 house, this would equate to a down payment of either $9,000 (3%) or $15,000 (5%).

Thanks to changes recently implemented by Fannie Mae and Freddie Mac, the down payment requirements for multi-unit primary residences have been drastically reduced. Now, borrowers can get a conventional loan on a two to four-unit property with just 5% down, provided they plan to live full-time in one of the units.

Second Homes

If you're purchasing a second home or vacation property with a conventional loan, you’ll need at least a 10% down payment. Keep in mind that only single-family properties are eligible for this type of mortgage since conventional guidelines do not allow for multi-unit second homes.

Investment Properties

Conventional down payment requirements are the highest for investment properties, with buyers needing 15% down to purchase a single-unit investment home. For properties with two to four units, investors will need to have 25% of the purchase price available to put down.

3% Down Conventional Loan Programs

Conventional loan guidelines allow for a 3% down payment from buyers purchasing their first home and those with incomes well below their area's norm. Here are the 3% down conventional loan programs worth considering.

97% Conventional & HomeOne

Fannie Mae’s 97% Conventional and Freddie Mac’s HomeOne programs are designed to help first-time buyers take the leap into home ownership with just 3% down. Conventional guidelines consider a first-time homebuyer to be anyone who has not owned property within the previous three years.

HomeReady & Home Possible

Lower-income borrowers may be eligible for a 3% down payment under Fannie Mae’s HomeReady or Freddie Mac’s Home Possible loan programs. To qualify, you cannot earn more than 80% of your area’s median income.

Borrowers using these loan types may be eligible for lower interest rates and cheaper mortgage insurance premiums. Plus, very low-earning borrowers who earn 50% or less of their area's median income may qualify for an additional $2,500 credit.

How to Get a Conventional Loan With Zero Down Payment

While most homebuyers will put either 3% or 5% down, getting a conventional loan with zero down payment is possible.

Even though conventional loans have a cap at either 95% or 97% of a property's value (the loan-to-value ratio, or LTV), you can actually borrow as much as 105% through approved down payment assistance (DPA) programs.

DPA options are predominantly localized, with programs commonly offered through state and municipal government agencies and community-based nonprofits.

For example: You're purchasing a $250,000 home and qualify for a 97% conventional mortgage. Your down payment requirement is $7,500. If you receive a Community Seconds DPA of $15,000, you will end up borrowing $257,500 (a 103% LTV), which would ultimately pay for your purchase and then cover some or all of your closing costs.

Conventional guidelines also allow cash gifts from family members to pay for your down payment and closing costs. You will need some documentation regarding the gift, but there is no restriction on the amount you can receive when purchasing a single-family primary residence.

Don’t Forget About Closing Cost Requirements

Your down payment is not the only sum you'll be expected to bring to the signing table. You will also need the funds to cover the closing costs associated with your transaction.

These closing costs include expenses like title research and insurance, lender fees and points, and the funding of escrow accounts. Your actual total will depend on various factors, but conventional closing costs are typically between 2% and 4% of the amount financed.

For example: If you're taking out a $250,000 mortgage, you should plan for closing costs ranging from $5,000 to $10,000. Your lender will provide you with a loan estimate that discloses the anticipated costs for your purchase.

Your Down Payment Affects Your PMI Premium

Lending guidelines require that all conventional borrowers making a down payment smaller than 20% pay for private mortgage insurance (PMI). PMI is an insurance policy, typically paid monthly as part of your mortgage payment, that protects your lender from loss if you quit making your payments.

Your credit score has the largest impact on your PMI premium. However, the amount you pay can also vary based on the type of mortgage you choose and the size of your down payment.

In most cases, borrowers who make a 5% down payment will be in a cheaper mortgage insurance bracket than if they opted to put 3% down. Similarly, buyers typically pay increasingly less at 10% and 15% down. With a 20% down payment, you will not be required to pay for PMI at all.

Although getting PMI for under $100 per month is possible, buyers with bad credit or those purchasing more expensive homes can expect to pay much more.

Down Payment Requirements for Conventional Loan Alternatives

Conventional loans are the most popular type of residential mortgage out there. But they aren't the only option – buyers have a variety of common alternatives, some of which allow for zero money down without using down payment assistance programs (although you can still use them if you want).

FHA Loans

FHA loans are designed to allow buyers with credit issues to qualify for a 3.5% down home loan. You can get an FHA loan with a credit score of 580. However, some lenders may be willing to accept borrowers with a score as low as 500 if they can put 10% down.

VA Loans

You typically need to be a veteran or active service member to be eligible for a VA loan, but qualified borrowers can use the program to purchase a home with 0% down. Also, VA interest rates are generally lower than comparable conventional mortgages.

VA loans do not require mortgage insurance or charge a similar ongoing fee. Most borrowers pay a funding fee at closing but are free from monthly mortgage insurance premiums.

USDA Loans

USDA loans are available for buyers purchasing property in rural or low-density suburban areas. These loans let you buy a home with no money down and a subsidized interest rate. Unlike the other types of loans we've covered, USDA mortgages have a maximum income limit, which varies based on your area and the number of people in your household.

Frequently Asked Questions: Conventional Loan Down Payments

Conventional loan down payment requirements can vary depending on your individual situation. If you're still unsure how the guidelines will impact you, here are a few of the most commonly asked questions and their answers that may help.

Do You Have to Put 20% Down on a Conventional Loan?

No! This is a long-running myth or at least severely outdated information. Decades ago, lenders preferred buyers put at least 20% down to minimize risk if the borrower quit making their payments.

However, while 20% is still an excellent down payment target, it's possible to get conventional loans with as little as 3% down. Just expect to pay for private mortgage insurance until you reach 20% equity.

How Much Down Payment for a Conventional Loan With Bad Credit?

The amount of your conventional loan down payment typically won't change based on your credit. However, conventional lenders will require a minimum credit score of 620 to qualify. Even then, a lower score will translate into far higher conventional rates.

If you have bad credit, you might consider an FHA loan, which accepts a score as low as 580 with a 3.5% down payment.

Are Down Payment Requirements Lower for Conventional or FHA Loans?

FHA loans allow all borrowers to purchase a primary residence with up to four units for just 3.5% down. By contrast, conventional loans allow first-time and lower-income homebuyers to purchase a single-family primary residence with just 3% down. All other buyers can expect to need a conventional loan down payment percentage of 5%.

So, if you're purchasing a single-unit home and qualify for one of the 3% down programs, you'll have a lower down payment requirement going conventional. Other buyers will find the FHA down payment requirements lower than the standard 5% conventional minimum.

To explore your conventional down payment options, take a look at today’s mortgage rates and apply with an experienced lender serving your community.