Programs that offer 3% down

The primary programs offering a 3% down payment are backed by Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac. Fannie Mae offers the “Conventional 97” loan, a standard program often requiring at least one borrower to be a first-time homebuyer. They also offer “HomeReady,” designed for creditworthy, low-to-moderate-income borrowers. Similarly, Freddie Mac offers “HomeOne,” available to first-time homebuyers without income limits, and “Home Possible,” targeted at low-to-moderate-income borrowers with income caps. These programs are designed to facilitate homeownership for those with limited upfront savings, often allowing for the lowest down payment possible on a fixed-rate mortgage.

No, income limits do not apply to every 3% down payment program. The standard “Conventional 97” option from Fannie Mae and the “HomeOne” program from Freddie Mac generally do not impose income restrictions, making them accessible to higher-income borrowers provided at least one borrower is a first-time homebuyer. However, the specialized affordable lending programs—Fannie Mae’s “HomeReady” and Freddie Mac’s “Home Possible”—do enforce strict income limits. To qualify for these specific affordable housing options, your qualifying income typically must be at or below 80% of the Area Median Income (AMI) for the property’s location.

It depends on the program. The standard 97% loan-to-value (LTV) programs, specifically Fannie Mae’s Conventional 97 and Freddie Mac’s HomeOne, require that at least one borrower be a first-time homebuyer. A first-time buyer is generally defined as someone who has not owned a residential property in the three years preceding the purchase. Conversely, the income-restricted programs like HomeReady and Home Possible do not strictly require first-time buyer status. Repeat buyers can qualify for these products if they meet the specific income eligibility requirements (typically 80% or less of the Area Median Income).

No, programs offering a 3% down payment are strictly reserved for principal residences. You must intend to occupy the home as your primary dwelling to qualify. Lenders view investment properties and second homes (vacation properties) as carrying higher risk, which necessitates a larger equity stake from the borrower. Typically, investment properties require a down payment of at least 15% to 25%, while second homes generally require at least 10%. If your objective is to generate rental income or purchase a vacation home, you will not qualify for these 97% LTV conventional products.

To qualify for a conventional loan with the minimum 3% down payment, you generally need a credit score of at least 620. While this is the minimum baseline set by Fannie Mae and Freddie Mac, individual lenders may apply their own “overlays” requiring higher scores, such as 640 or 660. Additionally, borrowers with scores closer to the minimum 620 threshold will likely face higher interest rates and more expensive private mortgage insurance (PMI) premiums compared to those with higher scores. If your credit score is below 620, you may need to consider an FHA loan.

Yes, for 3% down payment programs secured by a principal residence, you are generally allowed to use gift funds for the entire down payment. Guidelines from Fannie Mae permit the down payment to come entirely from gifts provided by acceptable donors, such as relatives (spouse, child, or other dependent) or individuals related by blood, marriage, adoption, or legal guardianship. You will typically need to document the transfer of funds and provide a gift letter signed by the donor stating that the funds are a bona fide gift and that no repayment is expected.

Because you are putting down less than 20% of the home’s value, you must pay Private Mortgage Insurance (PMI). This coverage protects the lender in the event of default. For 97% LTV conventional loans, the required PMI coverage is typically 35%. Unlike the mortgage insurance premiums (MIP) on FHA loans, which can persist for the life of the loan, conventional PMI is not permanent. You can request its cancellation once your principal balance drops to 80% of the home’s original value, or it will automatically terminate when the balance is scheduled to reach 78%.

Generally, the 3% down payment option is restricted to one-unit properties, which includes single-family detached homes, townhomes, and condos. If you wish to purchase a 2- to 4-unit property, the down payment requirement usually increases significantly. For instance, a two-unit principal residence typically requires a 15% down payment under standard conventional guidelines. While the Home Possible program offers flexible down payment options for 2-4 unit properties under specific conditions, the standard Conventional 97 and HomeOne programs are strictly for one-unit primary residences.

Yes, specific versions of these programs are available for refinancing, but they are restricted to “limited cash-out refinances” (often called rate-and-term refinances). You generally cannot use these high loan-to-value (LTV) options for cash-out refinances. For a limited cash-out refinance, you can refinance up to 97% of the property’s value if the existing loan is owned or securitized by Fannie Mae or Freddie Mac. This allows homeowners with limited equity to refinance into a lower interest rate or a more stable mortgage product.

Yes, you can purchase a condominium unit using the 3% down payment programs, provided the condo project meets specific eligibility standards. The project must comply with the lender’s and the GSE’s (Fannie Mae or Freddie Mac) project standards review to ensure its financial stability and physical condition are sound. The unit must be your primary residence to qualify for the 3% down payment. If the condo project is new or has certain characteristics, a full project review may be required before the loan can be approved.