Are There Low-Down-Payment Conventional Loans 

Introduction 

When you’re ready to purchase a home, one of the first questions that comes to mind is, “How much do I need for a down payment?” Conventional loans, often viewed as a more straightforward option, might be the solution you’re looking for, even if you’re working with a smaller budget. The good news is that yes, there are low-down-payment conventional loans available, and they can make homeownership more accessible than ever before. 

In this guide, we’ll explore how conventional loans with low down payments work, the eligibility criteria, and what benefits they offer compared to other types of mortgages. Additionally, we will provide resources to help you navigate the homebuying process, from understanding your financing options to finding support for your journey. 

For further insights, check out the Fannie Mae guidelines on down payments, which provides details on eligibility and requirements for low down payments. Also, if you’re considering how a low-down payment can impact your financial planning, be sure to visit ours Homebuyer Wallet resource page. 

What Are Low-Down-Payment Conventional Loans? 

Low-down-payment conventional loans are mortgages that allow buyers to purchase a home with a lower upfront cost, typically between 3% and 5% down, instead of the traditional 20%. These loans are backed by Fannie Mae and Freddie Mac and come with private mortgage insurance (PMI), which can be removed once enough equity is built. They serve as a great alternative to FHA loans, which require mortgage insurance for the life of the loan. 

HomeReady Mortgage: A Low-Down-Payment Option 

Eligibility Requirements → A Flexible Loan for Moderate-Income Buyers 

The HomeReady mortgage by Fannie Mae allows homebuyers to put down just 3%. To qualify, buyers must have a credit score of 620+ and meet income limits (80% of the area median income). 

The HomeReady mortgage by Fannie Mae allows homebuyers to put down just 3%. To qualify, buyers must have a credit score of 620+ and meet income limits (80% of the area median income). This makes it an excellent option for moderate-income buyers who might not have access to large down payments but are ready to take on the responsibility of homeownership. Additionally, HomeReady offers flexible underwriting standards, considering non-traditional income sources like rental income or boarder income, which can help expand eligibility. By offering reduced mortgage insurance requirements and the option for lower monthly payments, HomeReady makes homeownership more attainable for many. 

Key Benefits → Why Choose HomeReady Mortgage? 

HomeReady allows co-borrowers who don’t live in the home and uses alternative income sources to qualify. Additionally, private mortgage insurance (PMI) can be canceled once 20% equity is reached, reducing long-term costs. 

Learn more about Homebuyer Wallet’s mortgage solutions. 

Home Possible Mortgage: Another Great Low-Down-Payment Option 

Features of Home Possible Mortgage 

The Home Possible mortgage from Freddie Mac is another excellent low-down-payment conventional loan. It requires only 3% down and is designed to assist low-to-moderate-income borrowers in achieving homeownership. 

Benefits → Why Choose Home Possible Mortgage? 

This program allows co-borrowers and alternative sources of income, just like HomeReady. Additionally, PMI can be canceled once 20% equity is reached, making it a cost-effective choice in the long run. 

The Importance of Low-Down-Payment Conventional Loans 

Accessibility → Making Homeownership Possible with Less Savings 

With low-down-payment conventional loans, homebuyers don’t need to save a full 20% to purchase a home. This makes buying a home faster and more attainable. 

PMI Benefits → How It Compares to FHA Loans 

Unlike FHA loans, which require mortgage insurance for the life of the loan, conventional loan PMI can be removed once 20% equity is reached, saving thousands over time. 

Actionable Steps to Qualify 

Improve Your Credit Score → The Key to Better Loan Terms 

Ensure your credit score is 620 or higher to qualify for the best rates. Pay down debts and make payments on time to improve your score before applying. 

Compare Lenders → Find the Best Loan Terms 

Different lenders offer varying interest rates and incentives for low-down-payment loans. Shop around and compare offers to secure the best terms. 

Save for Additional Costs → Budgeting Beyond the Down Payment 

Even with a low-down-payment conventional loan, you’ll need to cover closing costs, home inspections, and other upfront expenses. Having extra savings can prevent financial strain after the purchase. 

Explore Homebuyer Wallet’s financial planning tools (Internal Link) to help you manage upfront homeownership costs. 

FAQs About Low-Down-Payment Conventional Loans 

Can I Get a Conventional Loan with 3% Down? 

Yes, through programs like Conventional 97, HomeReady mortgage, and Home Possible mortgage, eligible buyers can put down just 3%. 

How Can I Remove PMI on a Conventional Loan? 

PMI can be removed once you reach 20% equity, unlike FHA loans where mortgage insurance stays for the life of the loan. 

Are Low-Down-Payment Loans More Expensive in the Long Run? 

Not necessarily. Although PMI adds an extra cost, it can be removed once you build 20% equity, making it a more cost-effective solution compared to FHA loans. 

What’s the Difference Between HomeReady and Home Possible? 

Both loans require 3% down, but HomeReady is offered by Fannie Mae, while Home Possible is a Freddie Mac program. Each has slightly different income requirements and eligibility criteria. 

Key Takeaways 

Low-down-payment conventional loans offer an affordable homebuying solution, especially for first-time buyers who may not have large savings. With down payments as low as 3%, these loans help reduce the financial barrier to homeownership. They provide flexibility, lower upfront costs, and a clear path to eliminating Private Mortgage Insurance (PMI) once sufficient equity is built in the home. Additionally, conventional loans often come with fewer fees compared to government-backed loans, making them an attractive option for many buyers. If you’re planning to purchase a home, exploring low-down-payment conventional loans could be a smart choice to ease the financial burden of your first home purchase. 

Take the Next Step 

If you’re looking to buy a home but don’t have a 20% down payment, low-down-payment conventional loans can be a great option. These programs, such as the HomeReady mortgage and Home Possible mortgage, allow you to enter the housing market sooner with a manageable upfront investment. 

Want to take the next step? Contact a mortgage professional today to see if you qualify for a low-down-payment conventional loan!