With mortgage interest rates about double what they were in 2021, it has become increasingly costly to purchase a home. Saving for a down payment is no walk in the park either. But the good news is you don’t always have to come to the table with a substantial down payment. Some loan programs only require a 3 percent down mortgage payment.

3 percent down mortgage options

Mortgage options that only require a 3 percent down payment are open to anyone who meets the program requirements. Typically, you must be a first-time homebuyer or not have owned a home over the past few years to qualify. There are also income limits with these types of programs. But for those who qualify, reduced down payment mortgages minimize the barriers to homeownership.

1. Conventional 97

  • At least one of the applicants must be a first-time homebuyer
  • No income limits
  • If all occupying homebuyers are first-time buyers, at least one applicant must complete homeownership education
  • Must meet conventional debt-to-income requirements
  • Must have a credit score of 620 or higher

Backed by Fannie Mae, the Conventional 97 mortgage program, sometimes referred to as 97 Percent LTV Standard, allows you to pay just 3 percent as a down payment, leaving you with 97 percent financing. The down payment doesn’t have to come from your savings — the funds can be a gift from a friend or relative, grant or other form of down payment assistance.

To qualify, you must be a first-time homebuyer or haven’t owned a home in the last three years. Unlike some other 3 percent mortgages, you aren’t subject to income limits, but you’ll need to meet conventional debt-to-income (DTI) ratio requirements and have a credit score of 620 or higher. You’ll also need to complete a homebuyer education course.

“The underwriting guidelines are no more stringent than for any other conventional 30-year mortgage,” says Dan Green, president of Cincinnati-based mortgage company Homebuyer.com.

In addition, the home you’re buying must be your primary residence (meaning you’ll live in it) and a single-family property, which includes approved condos. The purchase price can’t exceed conforming loan limits. In 2023, this limit in most housing markets is $726,200.

Because you’re putting less than 20 percent down, you’ll also need to pay for private mortgage insurance (PMI) with your monthly mortgage payment. Your premium will be based on your loan-to-value (LTV) ratio — in this case, 97 percent — and credit score. Once you have 20 percent equity in your home, you can stop paying PMI. This applies to any conventional loan program.

2. Fannie Mae’s HomeReady program

  • Open to applicants who have not owned a primary residence during the past three years
  • Must pay for private mortgage insurance
  • Must take homeowner education course if applicants are first-time buyers
  • Credit score minimum of 620.
  • Income cannot exceed 80 percent of the area’s median income

Fannie Mae backs another 3 percent conventional loan called the HomeReady program. This program allows eligible homebuyers to make a 3 percent down payment and borrow up to 97 percent. You can use the loan to buy different types of properties, including a single-family home, a home with up to four units or a condo.

Unlike Conventional 97, you don’t have to be a first-time homebuyer to qualify for a HomeReady mortgage, but your income does need to fall under certain limits (unless you’re buying in a specially designated area). You can determine your eligibility for a HomeReady mortgage by using this tool. If you are a first-time buyer, you’ll need to take a homebuyer class.

If you put less than 20 percent down, you’ll need to pay PMI, but the premium rates are lower with a HomeReady mortgage.

Benefits for borrowers participating in Fannie Mae’s HomeReady program include the ability to cancel PMI once the loan drops below a 80 percent loan-to-value ratio. The program also includes more flexible underwriting requirements that allow you to use rental unit or boarder income toward your income requirements. In addition, you’re not required to bring any money to the table with this program — 100 percent can come from money received as gifts and down payment assistance.

3. Freddie Mac’s HomePossible program

  • First-time homebuyers must participate in homeownership education
  • Must have a credit score of 660
  • Applicant income cannot exceed 80 percent of the area’s median income
  • Must pay for private mortgage insurance
  • Must live in the home as your primary residence

Similar to Fannie Mae’s HomeReady program, Freddie Mac offers a 3 percent down mortgage option through the HomePossible program. Eligible homes include single-family homes, as well as homes with up to four units, condominiums and co-ops. Manufactured homes are also eligible with certain restrictions. Your income can be no more than 80 percent of the area’s median income. You can determine your eligibility for a HomePossible mortgage using this income eligibility tool.

Freddie Mac’s HomePossible program can help you access homeownership with a smaller mortgage down payment. The program also allows non-occupying co-borrowers to contribute funds to the down payment for one-unit properties. In addition, once you reach 20 percent equity in the home, you can eliminate mortgage insurance, which reduces your monthly mortgage payment.

4. HomeOne

Freddie Mac also backs HomeOne, a 3-percent down, fixed-rate program for first-time homebuyers. Notably, there are no income or geographic restrictions on borrowers, but you’ll be required to pay PMI and complete homebuyer education. You’re also limited to purchasing a one-unit property (including condos) that you’ll use as your primary residence.

Other low-down payment options

  • FHA loans – Insured by the Federal Housing Administration (FHA), FHA loans allow borrowers to put down just 3.5 percent with a credit score of 580 or higher, or at least 10 percent with a score as low as 500. However, FHA borrowers with less than 20 percent down must pay FHA mortgage insurance premiums (MIP) for the life of the loan — it can’t be removed like with a conventional loan. “The FHA is a catch-all, serving homebuyers who are not eligible for the other programs,” says Green. “It’s purposefully inclusive and tries to support as many homeowners as possible. You don’t need to be low- or moderate-income to qualify.”
  • USDA and VA loans – USDA and VA loans don’t require any down payment, but they’re only for specific types of borrowers: USDA loans for borrowers in certain rural areas and VA loans for active-duty service members, veterans and surviving spouses. Neither charge mortgage insurance, but USDA loans come with guarantee fees and VA loans come with a funding fee.

Next steps to get a mortgage

With 3 percent down mortgage options, you don’t need to drain your savings or save for years for a down payment on a home. However, if you want to accelerate your down payment savings efforts, consider using high-yield savings accounts and automating your savings. Once you’re ready to start house hunting, shop around for mortgage lenders to discuss down payment assistance programs and what you might be eligible for to find the best deal.