Minimum Down Payment Requirement

For a standard purchase transaction of a one-unit principal residence, the minimum down payment required is typically 5%, corresponding to a maximum loan-to-value (LTV) ratio of 95%. However, for first-time homebuyers purchasing a one-unit principal residence, Fannie Mae allows a minimum down payment of just 3% (97% LTV) for fixed-rate loans. Similarly, Freddie Mac permits a 3% down payment for one-unit properties under specific programs like HomeOne, provided at least one borrower is a first-time homebuyer. Borrowers should verify eligibility requirements, as high-balance mortgage loans or adjustable-rate mortgages may require higher down payments.

Yes, both Fannie Mae and Freddie Mac offer specialized affordable lending programs that permit a down payment as low as 3% (97% LTV) for qualified borrowers. Fannie Mae’s HomeReady mortgage allows a 3% down payment for one-unit principal residences. Likewise, Freddie Mac’s Home Possible program permits a 3% down payment for one-unit properties. These programs are designed for creditworthy low-to-moderate-income borrowers and often have income limits based on the area median income. Unlike standard first-time homebuyer options, these affordable programs may also allow for lower down payments on manufactured housing under specific conditions.

For a second home, the minimum down payment requirement is generally higher than for a primary residence. Fannie Mae and Freddie Mac typically require a minimum down payment of 10%, which corresponds to a maximum LTV ratio of 90%. The property must be a one-unit dwelling suitable for year-round occupancy and occupied by the borrower for some portion of the year. It is important to note that adjustable-rate mortgages (ARMs) secured by second homes may adhere to different LTV limits or credit score requirements compared to fixed-rate products.

Investment properties represent a higher risk, requiring a larger down payment compared to principal residences. For a one-unit investment property, the minimum down payment is typically 15% (85% LTV). If the borrower is purchasing a two- to four-unit investment property, the requirement increases significantly, generally requiring a down payment of 25% (75% LTV). These loans are not eligible for the lower down payment options found in HomeReady or Home Possible programs, as those are restricted to principal residences.

Yes, purchasing a two- to four-unit property as a principal residence generally requires a higher down payment than a single-unit home. For a two-unit principal residence, the minimum down payment is typically 15% (85% LTV). For three- to four-unit properties, the minimum down payment increases to 20% (80% LTV). However, specific affordable programs like Freddie Mac’s Home Possible may allow for higher LTV ratios (lower down payments) on two- to four-unit properties under certain conditions, though borrowers generally must contribute at least 3% of the value from their own funds.

For standard manufactured homes, the minimum down payment is typically 5% (95% LTV). However, if the manufactured home meets specific higher standards, such as Fannie Mae’s MH Advantage or Freddie Mac’s CHOICEHome, borrowers may qualify for a down payment as low as 3% (97% LTV). To qualify for the lower down payment, the home must meet specific construction, architectural, and energy efficiency standards that make it more consistent with site-built housing. Loans secured by manufactured homes are generally subject to stricter underwriting guidelines and may require manual underwriting in some cases.

Yes, for conventional loans with a down payment of less than 20% (an LTV ratio greater than 80%), the lender must obtain a primary mortgage insurance policy. This coverage protects the lender against loss in the event of default. The amount of coverage required depends on the LTV ratio; for example, a loan with a 97% LTV (3% down) generally requires 35% coverage for a fixed-rate loan with a term of 20 years or less, or higher for longer terms. Lenders must ensure this coverage is in place at the time the loan is purchased or securitized.

For a one-unit principal residence with a down payment of less than 20% (LTV greater than 80%), Fannie Mae and Freddie Mac generally allow the entire down payment to come from gift funds, meaning a minimum contribution from the borrower’s own funds is not required. However, for two- to four-unit principal residences or second homes with LTVs greater than 80%, the borrower is typically required to make a minimum contribution of 5% from their own funds before gift funds can be used to supplement the down payment.

Yes, Adjustable-Rate Mortgages (ARMs) may have different maximum LTV ratios compared to fixed-rate mortgages. Generally, the maximum LTV for an ARM on a one-unit principal residence is 95%, requiring a minimum down payment of 5%. ARMs are typically not eligible for the 3% down payment options available for fixed-rate loans under standard first-time homebuyer programs. Additionally, specific ARM plans (e.g., 3/6-Month or 5/6-Month ARMs) have unique qualification rules regarding the initial fixed-rate period and interest rate caps that borrowers must meet.

Generally, sweat equity is not accepted as a source of funds for the down payment on standard conventional loans because it is difficult to accurately value. However, exceptions exist for specific programs like HomeReady or Home Possible. Under HomeReady, sweat equity can be applied toward the down payment if the borrower participates in an affordable housing program run by a tax-exempt nonprofit with a demonstrated history of managing volunteers. Similarly, Freddie Mac allows sweat equity for Home Possible mortgages if fully documented and verified. In these specific cases, it can replace cash funds.