Yes, you can get a conventional loan with 3% down. Fannie Mae and Freddie Mac back four programs that allow it: HomeReady, Home Possible, the Standard 97% LTV loan, and HomeOne. On a $300,000 home, that’s $9,000 down instead of the $60,000 a 20% down payment would require. Which program fits you depends mostly on two things: how much you earn, and whether you’ve owned a home in the last three years.
Which of the Four Programs You Qualify For
Two of the programs cap your income. Two do not but require first-time buyer status. Start there.
If Your Income Is at or Below 80% of Area Median
Fannie Mae’s HomeReady and Freddie Mac’s Home Possible both cap qualifying household income at 80% of the area median income (AMI) for the property’s location.1Fannie Mae. HomeReady Mortgage Loan and Borrower Eligibility2Freddie Mac. Home Possible Mortgage Fact Sheet Neither requires you to be a first-time buyer. AMI varies widely by county, so 80% might be $45,000 in a rural area and over $100,000 in a high-cost metro. Fannie Mae and Freddie Mac each publish an address lookup tool that returns the exact figure for a given property.
Home Possible accepts a slightly wider range of property types than HomeReady, including condominiums, cooperative units, and planned unit developments.2Freddie Mac. Home Possible Mortgage Fact Sheet
If Your Income Is Higher, But You’re a First-Time Buyer
Fannie Mae’s Standard 97% LTV loan and Freddie Mac’s HomeOne have no income limits and no geographic restrictions. The tradeoff: at least one borrower on the loan must be a first-time homebuyer, defined as someone who has not owned a home in the past three years.3Fannie Mae. FAQs – 97% LTV Options4Freddie Mac Single-Family. HomeOne
Manufactured homes are not eligible under HomeOne unless they meet Freddie Mac’s CHOICEHome specifications.4Freddie Mac Single-Family. HomeOne
Credit Score and Debt-to-Income
Most lenders require a minimum credit score of 620 for a conventional loan with 3% down. A higher score won’t change your eligibility, but it will usually get you a better rate.
Your debt-to-income ratio (DTI) is the share of your gross monthly income that goes toward debt payments. Loans run through Fannie Mae’s Desktop Underwriter can go up to 50% DTI. Files that require manual underwriting are capped at 36% by default, stretching to 45% only with strong credit and cash reserves.5Fannie Mae. Debt-to-Income Ratios
Student loans count against your DTI even when payments are deferred or on an income-driven plan. Fannie Mae uses the documented monthly payment or 1% of the outstanding balance. Freddie Mac uses 0.5% of the outstanding balance if the credit report shows a zero payment. These assumed payments can lower the loan amount you qualify for, so run the numbers before you apply.
Property and Loan Restrictions
All four programs share a set of limits. The home must be a one-unit primary residence. Investment properties, second homes, and multi-unit buildings do not qualify at 97% loan-to-value. The loan itself must be a fixed-rate mortgage — adjustable-rate options are not available at this down payment level.
If you add a non-occupant co-borrower, such as a parent who signs but won’t live in the home, the maximum LTV drops to 95%, which means at least 5% down.6Fannie Mae. Non-Occupant Borrowers
Where the Down Payment Can Come From
For a one-unit property, Fannie Mae’s 97% LTV programs let your entire 3% down payment come from gift funds, grants, or Community Seconds programs. You are not required to contribute any of your own money.3Fannie Mae. FAQs – 97% LTV Options That matters if your income is steady but your savings are thin.
If any of your down payment is gifted, the lender will want a signed gift letter listing the donor’s name, address, phone number, and relationship to you, plus the dollar amount and a statement that no repayment is expected. You will also have to document the transfer itself. Acceptable proof includes a copy of the donor’s check paired with your deposit slip, evidence of an electronic transfer between the two accounts, or a copy of a cashier’s check delivered to the closing agent.7Fannie Mae. Personal Gifts
Private Mortgage Insurance
Any conventional loan with less than 20% down carries private mortgage insurance (PMI), which protects the lender if you default. It does not protect you.8Consumer Financial Protection Bureau. What Is Private Mortgage Insurance? For a 97% LTV mortgage, PMI usually runs between about 0.5% and 1.5% of the original loan amount per year. On a $300,000 loan, that’s roughly $125 to $375 added to your monthly payment.
PMI ends. Under the Homeowners Protection Act, you can request cancellation once your balance reaches 80% of the home’s original value, provided your payment history is good and there are no subordinate liens. Your lender must automatically terminate PMI once the scheduled balance drops to 78% of the original value, as long as you are current.9Federal Reserve. Homeowners Protection Act of 1998
Closing Costs, Seller Concessions, and Reserves
Plan for closing costs of 2% to 5% of the loan amount on top of your down payment. These cover the appraisal, title search, title insurance, lender fees, and prepaid items like homeowners insurance and property taxes.10Fannie Mae. Closing Costs Calculator
On a 97% LTV loan, the seller can contribute up to 3% of the purchase price toward your closing costs. Any excess beyond your actual costs gets deducted from the sale price for appraisal purposes.11Fannie Mae. Interested Party Contributions Whether a seller will agree depends on the market.
One benefit worth knowing: Fannie Mae does not require cash reserves for a one-unit primary residence when the loan clears automated underwriting.12Fannie Mae. Minimum Reserve Requirements You don’t need extra months of payments sitting in savings after closing, though having them strengthens your file.
Homebuyer Education
If every borrower on the loan is a first-time buyer, at least one of you has to complete a homebuyer education course before closing. The requirement applies across all four programs.13Fannie Mae. Homeownership Education and Housing Counseling4Freddie Mac Single-Family. HomeOne
The course can be online, by phone, or in person, through any provider whose content aligns with National Industry Standards or HUD standards. Housing counseling from a HUD-approved agency also satisfies the requirement, and for HomeReady borrowers it may unlock a small pricing credit that reduces loan costs.13Fannie Mae. Homeownership Education and Housing Counseling
What Lenders Will Ask For
Expect a full financial workup when you apply:
- W-2 forms from the last one to two years, filed federal tax returns with all schedules, and a pay stub dated within 30 days of your application showing year-to-date earnings.14Fannie Mae. Standards for Employment Documentation
- Two months of statements for every checking, savings, and investment account, showing where your down payment and closing costs are coming from.
- Gift letter and transfer documentation if any of the down payment is gifted.
- Government-issued ID and authorization for the lender to pull your credit report.
All of this feeds into the Uniform Residential Loan Application (Form 1003). The declarations section asks whether you’ve owned property in the last three years, and your answer there determines whether you qualify for the programs that require first-time buyer status.15Fannie Mae. Purchase Transactions Answer carefully.