As home prices continue climbing, saving for a traditional down payment has become one of the biggest barriers to homeownership. The median U.S. home price now sits above $400,000, according to the National Association of Realtors, which means a traditional 20% down payment requires roughly $80,000 in cash, putting many homes out of reach for the average buyer.
The good news is that many buyers can qualify for a conventional mortgage with as little as 3% down. On a $400,000 home, that’s only $12,000. While still a large chunk of money, it’s far more attainable for many households.
Here’s how 3%-down mortgages work, who qualifies and the trade-offs to understand before applying.
What Is a 3% Down Mortgage?
A 3% down mortgage allows you to borrow up to 97% of a home’s purchase price rather than the traditional 80% limit. These loans are conventional mortgages backed by Fannie Mae or Freddie Mac rather than insured by a government agency, as with FHA or VA loans.
These programs are designed to expand access to homeownership for first-time and moderate-income buyers while still maintaining conventional underwriting standards in terms of credit, income and debt ratios.
Borrowers typically need a solid credit profile, stable income and sufficient cash reserves, though exact requirements vary by lender and program.
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3% Down Mortgage Options
Several major programs allow qualified borrowers to put just 3% down.
Conventional 97
The Conventional 97 program allows buyers to finance up to 97% of the purchase price of a home. At least one borrower must qualify as a first-time homebuyer, but this definition is fairly generous, referring simply to someone who has not owned a home in the past three years.
If all borrowers meet the first-time buyer definition, at least one borrower must complete an approved homebuyer education course. Income limits do not apply to this program, which can make it attractive for moderate- and higher-income buyers who meet the ownership requirement.
HomeReady
HomeReady also allows a 3% down payment but has one fewer hurdle, as it does not require borrowers to be first-time buyers. Instead, household income must generally fall below 80% of the area median income for the property location.
HomeReady offers flexible income sourcing and doesn’t have a minimum personal contribution, meaning it allows certain non-borrower household income to help qualify. This can be very helpful for multigenerational households or buyers with shared living arrangements.
Home Possible
Home Possible is Freddie Mac’s 3% down option. Like HomeReady, it is designed for low- to moderate-income borrowers and includes income limits based on the property’s location.
First-time buyers must complete a homeownership education course. One of the main advantages is that co-borrowers who don’t plan to live in the residence can often make financial contributions. This makes it easier for families to pool resources for a down payment.
How To Qualify
While exact underwriting varies by lender, most 3%-down loans require:
- A minimum credit score often starting around 620, though recent Fannie Mae and Freddie Mac updates now consider credit within broader risk analysis rather than a strict minimum
- Stable income and employment history
- A manageable debt-to-income ratio, typically under 45%
- Funds for the down payment, closing costs and reserves
Lenders will also verify that the property meets appraisal and occupancy standards, as these programs are intended for primary residences.
Working with a lender experienced in low-down-payment conventional loans can help identify which program fits your financial profile.
The Downsides of Putting Just 3% Down
Low-down-payment loans make homeownership more accessible, but they come with trade-offs.
Private Mortgage Insurance (PMI)
Any conventional loan with less than 20% down requires private mortgage insurance (PMI), which protects the lender if you default. PMI costs vary based on credit score and loan size but can easily run $100 or more per month on a typical mortgage. According to the Consumer Financial Protection Bureau, PMI remains in place until you reach sufficient equity or refinance.
Lower Home Equity
Equity represents the difference between what your home is worth and what you owe on the mortgage. By definition, if you only put 3% of a home’s value down, you start with very little equity. Lower equity limits your ability to access home equity loans, refinance easily or absorb market downturns without risk of being underwater.
Higher Monthly Payments
Financing a larger portion of the purchase price increases your monthly mortgage payment and total interest paid over time compared with a larger down payment.
The Bottom Line: Is a 3% Down Mortgage Right for You?
A 3%-down mortgage can make sense if you have stable income, good credit and limited savings but want to enter the housing market now rather than waiting years to accumulate a larger down payment.
However, buyers should carefully budget for PMI, closing costs, property taxes, insurance and ongoing maintenance to ensure the payment remains sustainable. While a small down payment might seem like an “easy” path to homeownership, it’s not viable if you can’t afford the ongoing expenses. This is why, in many cases, waiting to save a larger down payment may still be a better course of action.
Ultimately, a well-structured 3%-down loan can provide a realistic pathway into homeownership for many buyers, but it’s only a good option if it doesn’t sacrifice financial stability.
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This article originally appeared on GOBankingRates.com: How To Get a Mortgage With Just 3% Down in 2026
