How Much Down Payment for a Conventional Loan

There are a few loans that only require a 3% down payment. Which one is the best?

New home buyers holding a home sweet home signWhen deciding how much money to put down on a conventional loan, there are several factors to consider. The first is the amount of money you have available for a down payment. If you have a large amount of cash saved up, you may be able to put down 20% or more on your loan and avoid private mortgage insurance (PMI). However, if you have less cash available, you may need to make a smaller down payment and pay PMI.

Another factor to consider is the type of loan you are getting. If you are getting a fixed-rate loan, the interest rate will not change over the life of the loan. This means that your monthly payments will stay the same, even if home prices go up or down.

Down Payment for a Conventional Loan

When you’re ready to buy a house, one of the first things you’ll need to determine is how much of a down payment you can afford. Conventional home loans require a minimum of 5% down, but there are programs available that allow you to put as little as 3% down.

If you have the cash on hand, making a larger down payment can help you avoid having to pay the mortgage insurance premium (PMI). PMI is required if your down payment is less than 20%, and it can add several hundred dollars to your monthly mortgage payment.

Keep in mind that the more money you put down up front, the lower your monthly payments will be. But don’t let that discourage you from homeownership if a smaller down payment is all you can swing – with careful planning and budgeting, owning a home is within reach for just about anyone.

Does a Conventional Loan Require 20 Down?

A conventional loan is any mortgage that is not backed by the federal government. Conventional loans may be conforming or non-conforming. Conventional loans require a down payment of at least 3 percent.

For homebuyers with lower credit scores or who don’t have enough cash for a larger down payment, FHA loans are usually the best choice. Borrowers with credit scores of 580 or higher can qualify for an FHA loan with a down payment as low as 3.5 percent.

If you have a credit score below 580, you’ll need to put down at least 10 percent to get an FHA loan.

Can a Down Payment Be Gifted for a Conventional Loan?

A down payment for a conventional loan can be gifted from a family member, employer, or other approved source. Your mortgage company will also need a Gift Letter, which is a document that states the donor's relationship to you and confirms that the money is a gift with no expectation of repayment.

If you're receiving a gift from an employer, they'll need to provide a letter on company letterhead that states the amount of the gift and that there's no expectation of repayment. The employer's name, address, phone number, and human resources contact information should be included on the letter. Receiving a gift for your down payment is a great way to help you save for a home, but it's important to make sure that everything is done correctly in order to avoid any issues down the road.

The down payment cannot come from the seller.

Are Closing Costs the Same as a Down Payment?

Nice suburban homeWhen you buy a home with a conventional loan, you will typically be expected to put down a percentage of the home's purchase price. This is known as your “down payment.” Your down payment can range anywhere from 3% to 20% of the purchase price, depending on the type of loan you get and other factors.

Closing costs are different from your down payment. Closing costs are fees that you pay at the closing of your home purchase. These fees can range from 2% to 5% of the purchase price and are paid by both the buyer and seller. Examples of typical closing costs include:

  • appraisal fee
  • attorney's fees

  • credit report fee

  • homeowners insurance

  • loan origination fee

  • pest inspection fee

  • property taxes

  • survey fee

  • title insurance

  • underwriting fee

Is Mortgage Insurance Required on a Conventional Loan?

When you put less than 20% down on a conventional loan, you'll be required to pay mortgage insurance premiums. PMI safeguards the mortgage lender in the event of your loan default.

How much will PMI cost? It depends on a number of factors, including the size of your down payment, your credit score, and the type of loan. But you can expect to pay somewhere between 0.5% and 2% of your loan amount each year for PMI.

So, if you're taking out a $200,000 loan with 10% down, you can expect to pay $2,000 a year for PMI (0.5% x $200,000). And if you're taking out a $200,000 loan with 5% down, you can expect to pay $4,000 a year for PMI (1% x $200,000).

You'll pay for PMI until you've built up 22% equity in your home. That usually happens when your home's value has increased and/or you've paid down some principal on your loan. At that point, you can ask your lender to cancel PMI.

Conventional 97 Loan Program

The Conventional 97 loan program is a mortgage loan that allows homebuyers to finance up to 97% of the purchase price of a home. This program is available to homebuyers who have a credit score of 620 or higher and who meet certain income requirements.

The Conventional 97 loan program is a great option for homebuyers who may not have the resources for a large down payment. This program allows you to finance up to 97% of the purchase price of your home, which can help make homeownership more affordable. If you are interested in this program, be sure to speak with a loan officer to learn more and to see if you qualify.

Applicants for the Conventional 97 loan must be first time home buyers. A first-time house buyer is someone who has not owned a home in the preceding three years. (see below).

  • 1-unit principal residence, including eligible condos, co-ops, PUDs, and MH Advantage®
  • There are no income limits with the Conventional 97 loan
  • Mortgage insurance is required
  • If all occupied borrowers are first-time home purchasers, then at least one borrower must take homebuyer education, regardless of the product selected.

Conventional 97 Refinance Option

Homeowners can refinance their current mortgage with the Conventional 97 loan, provided that the existing mortgage is owned by Fannie Mae.

HomeReady Loan Program

The HomeReady Loan Program is a mortgage loan program that allows for a down payment as low as 3%. This program is designed for home buyers who have a credit score of at least 620 and who are looking to purchase a property that is their primary residence. Borrowers who participate in the HomeReady program must complete homeownership counseling.

The benefits of the HomeReady program include:

  1. A lower down payment requirement than most conventional loan programs
  2. No minimum contribution from the borrower’s own funds required
  3. Flexible sources of funds allowed for the down payment, including gifts and grants
  4. Downpayment assistance programs may be used in conjunction with the

HomeReady Program

-Borrowers can receive up to 97% financing
To learn more about this program and see if you qualify, please contact a participating lender.

The HomeReady loan program is similar to the Conventional 97 loan with a few exceptions.
There is no first-time home buyer requirement, but the
Applicants income must be at 80% or lower than the median area income.

HomeReady Refinance Program

The HomeReady program may be used to refinance the current mortgage, provided that the existing loan is owned or guaranteed by Fannie Mae.

Home Possible Loan Program

The Home Possible loan program is a 3% down payment program created for the first time home buyer. Home Possible is offered by the federal national mortgage corporation (Freddie Mac). Home Possible is a comparable program to Fannie Mae's HomeReady program.

Eligible property types include 1-4 units, planned-unit developments, condos and manufactured homes are eligible with certain restrictions.

There are also extra criteria for homes with 2-4 units. To qualify for a 2-4 unit home, you must have a down payment of at least 5%, with at least 3% coming from your own assets.

Home Possible mortgages are offered to all qualifying borrowers earning less than 80% of the region median income (AMI).

Non-occupying cosigners are permitted, however, the non-occupying borrower's income, when added with the primary borrower must be less than 80% of the area median income.

Mortgage insurance is required.

How Much Down Payment for a Conventional Mortgage?

Borrowers who do not meet the requirements of the Conventional 97, HomeReady or the Home Possible loan programs will need a 5% down payment for a purchase mortgage.

Who is a First Time Home Buyer?

The US Department of Housing and Urban Development (HUD) set criteria to assist lenders in identifying first-time homeowners for loan programs. A first time homebuyer, as defined by HUD, is a person who satisfies any of the following criteria:

A person who has not owned a principal residence for the preceding three years.
Couples are considered first-time homebuyers if one spouse is/was a homeowner while the other has never bought a house.

A single parent who has never purchased a house before is termed a first-time purchaser.

A first-time homeowner is someone who is a displaced homemaker (has worked only in the home for a considerable number of years providing unpaid domestic services for family members) and has only owned a property with their spouse.

A person who has possessed just a primary dwelling that has not been firmly fastened to a permanent foundation in line with statutory rules (such as a mobile home).

A person who has solely held a property that violates state, municipal, or model building regulations and cannot be brought into conformity at a cost less than the cost of erecting a permanent construction.

Rotating question markFAQs About Down Payments

Q. Do conventional loans require inspection?

A. There are a few key things to know about conventional loans and inspections. First, while most conventional loans will require an appraisal, not all will require a full home inspection.

This is important to know because an appraisal generally costs less than a full inspection. Additionally, it's important to be aware that even if an inspection is not required, the lender may still order one at their discretion.

As such, it's always a good idea to be prepared for the possibility of an inspection. Finally, it's worth noting that even if an inspection is not required, the borrower may still choose to get one for their own peace of mind.

Q. Is a conventional loan good?

A. The short answer is yes, a conventional loan is a good loan option for borrowers with good credit and a down payment of at least 3%. However, there are a few things to consider before you apply for a mortgage. For one, your loan interest rate will likely be higher than it would be with an FHA loan. This is because the government does not back conventional loans.

Additionally, you’ll need to have a higher credit score to qualify for a conventional loan than you would for an FHA loan. Another thing to consider is that you’ll need to pay private mortgage insurance (PMI) if you make a down payment of less than 20% on a conventional loan.

Before you apply for a loan, be sure to account for PMI in your budget since it may increase your monthly mortgage payment by several hundred dollars.

If you’re still not sure whether a conventional loan is right for you, we recommend talking to a lender or financial advisor. They can help you compare your loan options and choose the best loan for your needs.

Q. How Much House Can I Afford?

A. There are a few things to consider when asking yourself how much house you can afford. A conventional loan typically requires a minimum of 5% down. However, you may be able to get a loan with a lower down payment if you have a good credit score or can prove that you have a steady income.

To calculate how much house you can afford, you will need to consider your monthly expenses and debts, as well as your down payment and the interest rate on the loan. The higher your monthly payments are, the less house you can afford. You can use an online calculator to estimate your monthly payments, or speak to a mortgage lender to get more accurate information.

Once you know how much house you can afford, you can start looking for homes in your price range. Keep in mind that the price of the home is not the only cost you will need to consider. Closing costs, property taxes, and homeowners insurance all add to the total cost of owning a home. Make sure you factor all of these costs into your budget before making an offer on a home.

Q. Is it hard to get a conventional loan?

A. Is it hard to get a conventional loan?The answer may depend on whom you ask, but overall, it seems that getting a conventional loan is not as difficult as it once was. That’s because lenders have become more flexible in their requirements, and down payment minimums have come down.

Still, there are some things you’ll need to know before you apply for a conventional loan. For starters, you’ll need good credit. A score of 660 or higher is generally considered “good,” and will help you qualify for a loan with a favorable interest rate. You’ll also need to show that you have enough income to make the monthly payments on your loan, and that you have a solid employment history.

If you can meet these basic requirements, then you should have no problem getting a conventional loan. Just be sure to shop around and compare interest rates from different lenders before you choose one.

Q. Which is a better loan, FHA or conventional?

A. If you're looking for a loan with a lower down payment requirement, you may be wondering if an FHA loan or a conventional loan is the better option. Here's a look at the key differences between these two types of loans:

  • Down payment: An FHA loan requires a minimum down payment of 3.5%, while a conventional loan requires at least 5%.
  • Credit score: You'll need a credit score of 580 or higher to qualify for an FHA loan, while a conventional loan requires a score of 620 or higher.
  • Mortgage insurance: FHA loans require mortgage insurance, regardless of your down payment amount, while conventional loans only require it if you put down less than 20%.
  • Loan limits: FHA loans have lower maximum loan limits than conventional loans in most US counties.

 So, which is the better loan option for you? It depends on your individual circumstances. If you have a low credit score or a small down payment, an FHA loan may be the best option. However, if you're able to put down 20% or more, you may save money in the long run with a conventional loan.

Q. What makes a loan conventional?

A. A conventional loan is a mortgage that is not backed by the federal government. Conventional loans can be either fixed-rate or adjustable-rate mortgages (ARMs).

The main difference between a conventional loan and other types of mortgages is that a conventional loan is not backed by the government. This means that if you default on your loan, the lender will not be able to recoup their losses through government insurance.Conventional loans are available with a variety of terms, including fixed-rate and adjustable-rate mortgages.

The term of the loan you choose will affect your monthly payment amount and the total interest you pay over the life of the loan.When choosing a conventional loan, it's important to compare offers from multiple lenders to make sure you're getting the best deal possible. Be sure to compare interest rates, fees, and terms before making your final decision.


In conclusion, it is clear that a conventional loan requires a much higher down payment than other types of loans. For many people, this can be a deterrent to homeownership. However, with careful planning and budgeting, it is possible to save up for a down payment on a conventional loan. The most important thing is to consult with a financial advisor to see if a conventional loan is the right fit for you.

Recommended Reading

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  2. 5-1 ARMs: The pros and cons of this popular mortgage option
  3. How does a 2-1 Buydown Loan work?