Conventional loans

3 percent down conventional loans: HomeReady, Home Possible and more

You do not need FHA to buy with a small down payment. Fannie Mae and Freddie Mac both back conventional loans at 3 percent down, and for some buyers they cost less over time because the mortgage insurance can be cancelled.

Reviewed November 2026 · Written for Buy Home Tips from the sources listed below

A conventional loan is one that is not insured or guaranteed by a federal agency. Most conventional loans follow the rules of Fannie Mae or Freddie Mac so the companies can buy them from lenders. Both companies run programs aimed at buyers with limited cash and modest incomes, and both allow down payments as low as 3 percent.

Minimum down payment on a $300,000 home. Program minimums applied to the worked example price

HomeReady from Fannie Mae

Fannie Mae describes HomeReady as a flexible mortgage for low-income borrowers, including first-time and repeat buyers with limited cash for a down payment. Its main features, according to Fannie Mae:

Down payments as low as 3 percent, with no minimum personal contribution required.
Funding from a wide range of sources, including gifts, grants and Community Seconds, which are second loans from eligible public or nonprofit programs.
Consideration of on-time rent payments in loan eligibility.
Reduced mortgage insurance requirements, with mortgage insurance that can be cancelled, subject to restrictions.
Income eligibility based on area median income, which you can check with Fannie Mae's lookup tool by address.

Fannie Mae also lists a $2,500 credit for very low-income first-time buyers for loans in a defined date window running into early 2027. Ask your lender whether you qualify and whether the window still applies when you close.

Home Possible from Freddie Mac

Freddie Mac describes Home Possible as a low down payment mortgage for low- and very low-income borrowers. Its features include:

A 3 percent down payment, with a maximum 97 percent loan-to-value on 1-unit properties.
Flexible sources of funds: family, employer assistance programs, secondary financing and sweat equity.
Qualifying income limited to 80 percent of area median income, with no geographic limits on loan amounts.
Mortgage insurance on 1-unit properties that can be cancelled once the balance drops below 80 percent of the appraised value and cancellation criteria are met, with reduced coverage requirements above 90 percent loan-to-value.
Caps on certain credit fees for eligible loans.

The standard 97 percent option

Lenders can also offer standard conventional loans at 97 percent loan-to-value to eligible borrowers under each company's rules. These are not tied to the program income limits but come with their own requirements, such as first-time buyer status on some versions. Ask lenders which options they offer and price them side by side.

Loan size

All of these are conforming loans, so they must fit under the conforming loan limit. For 2026, the Federal Housing Finance Agency set the baseline one-unit limit at $832,750, with higher limits in high-cost areas up to $1,249,125.

Worked example: 3 percent down on a $300,000 home

Alicia earns below the income limit for her area and is buying a $300,000 home. At 3 percent down, she needs $9,000 for the down payment. Her lender estimates closing costs at about $9,000, and she has a $4,000 grant from her city, which the program allows.

Her loan is $291,000. At an illustrative 6.5 percent rate over 30 years, principal and interest is about $1,839 a month, plus mortgage insurance, property tax and insurance. Because she uses a conventional loan, she can ask to cancel mortgage insurance once her balance is low enough and she meets the criteria, rather than refinancing to remove it.

She also asks the same lender for an FHA Loan Estimate on the same day. FHA requires 3.5 percent down but may price differently at her credit score. Comparing both shows which costs less over the seven years she expects to stay.

Mortgage insurance: the main difference from FHA

The CFPB explains that private mortgage insurance protects the lender and can be paid monthly, upfront or both. On conventional loans it can generally be cancelled as equity builds, while FHA's annual premium lasts for the life of the loan when the down payment is under 10 percent. That difference often decides which loan costs less over time. But conventional mortgage insurance and pricing are more sensitive to credit score, so FHA can still win for some buyers.

Next steps

Check your income against the program limits for each address, ask two or three lenders for Loan Estimates under each program they offer, and compare the cash to close, the monthly payment and the mortgage insurance. The calculator below lays out the cash at each common down payment level.

Mini calculator: down payment options side by side

Enter a price to see the cash needed and the loan-to-value ratio at common minimum down payments.

Home price ($)

Estimated closing costs (% of price, from a Loan Estimate if you have one)

Enter your figures to see the result. Nothing you type leaves this page.

Closing costs vary by place and lender. Use the figure from your own Loan Estimate as soon as you have one.

3 percent down checklist

Check the income limit for your target address with each company's lookup tool.
Ask lenders whether they offer HomeReady, Home Possible and a standard 97 percent option.
Compare the mortgage insurance premium on each Loan Estimate.
Line up gift or assistance documentation early if you will use it.
Ask whether homebuyer education is required and which courses count.

Questions buyers ask

What is the difference between HomeReady and Home Possible?

HomeReady is Fannie Mae's program and Home Possible is Freddie Mac's. Both allow 3 percent down, accept flexible funding sources and offer reduced mortgage insurance coverage. They differ in details such as income limit lookups, eligible sources and features, and your lender may offer one, the other or both.

Is there an income limit for a 3 percent down conventional loan?

For Home Possible, Freddie Mac limits qualifying income to 80 percent of area median income. HomeReady also uses area median income limits that Fannie Mae publishes through its lookup tool. Standard 97 percent loan-to-value conventional options are not tied to those program income limits but have their own eligibility rules.

Can mortgage insurance be removed on these loans?

Freddie Mac says mortgage insurance on 1-unit Home Possible properties can be cancelled after the balance drops below 80 percent of the home's appraised value and cancellation criteria are met. Fannie Mae describes HomeReady mortgage insurance as cancellable with restrictions.

Can my down payment be a gift?

Yes, both programs accept gifts and other flexible sources. Freddie Mac lists family, employer assistance, secondary financing and sweat equity as possible sources for Home Possible.

Sources checked for this page

Checked November 2026. Programs and limits change; confirm with the source before you rely on a figure.