Homebuying used to mean stashing away a large down payment—but with today’s lending, that’s so yesterday. If you’re a strong buyer who’d prefer not to have government-guaranteed loan restrictions in your life, a low down payment conventional loan could be the answer.

Traditional loans are not backed by the government, but they’re one of the most sought-after and flexible forms of financing out there. And with programs like Fannie Mae’s HomeReady® and Freddie Mac’s Home Possible®, it’s now possible to qualify for a traditional mortgage with a mere 3% down payment—without sacrificing competitive interest rates.

What Is a Conventional Loan?

A traditional loan is a mortgage that is not insured or guaranteed by any government agency like FHA, VA, or USDA. Such loans are typically offered by private lenders (banks, credit unions, or mortgage companies) and must comply with guidelines set by Fannie Mae and Freddie Mac.

Historically, traditional loans required a 20% down payment to avoid private mortgage insurance (PMI). Yet now, qualified borrowers can get traditional loans as little as 3% to 5% down, especially if they have income and credit limitations.

 Low Down Payment Conventional Loan Options

These are the most common low-down-payment traditional loan programs:

1.Fannie Mae HomeReady

Minimum down payment: 3%

Who is eligible: Low- to moderate-income consumers

Credit score requirement: Typically 620+

PMI required: Yes, but may be waived

Special features: Allows income from roommates or boarders

2.Freddie Mac Home Possible

Minimum down payment: 3%

Who qualifies: First-time homebuyers or low-income buyers

Credit score needed: Typically 660+

PMI required: Yes, with option to cancel

Special features: Accepts “sweat equity” as down payment or closing cost

3.Standard 97 Loan

Minimum down payment: 3%

Who qualifies: First-time homebuyers

Loan type: Fixed-rate only

PMI: Required until 20% equity is reached

These products are backed by industry-standard underwriting but geared toward consumers who may not have the traditional 20% down payment.

Low-down-payment conventional and FHA loans are frequently matched by first-time homebuyers. Here’s where they stack up:

 

Conventional Loan vs. FHA Loan

Many first-time buyers compare low-down-payment conventional loans with FHA loans. Here’s how they differ:

Feature	Conventional Loan (3%-5%)	FHA Loan (3.5%)
Down payment	As low as 3%	3.5%
PMI/MIP	PMI (can be canceled)	MIP (often lifetime)
Credit flexibility	Moderate (620–660+)	More flexible (580+)
Property standards	More lenient	Stricter appraisal
Ideal for	Buyers with good credit	Buyers with lower scores or higher debt

If your credit is above 660 and you meet income limits, a conventional low down payment loan may save you more in the long run—especially since PMI can be removed once you reach 20% equity.

If your credit is above 660 and you are income-qualifying, a low down payment conventional loan will most assuredly save you money in the long run—especially since PMI can be eliminated when you are 20% equity.

Low Down Payment Conventional Loan Advantages

 Affordable Entry into Home Ownership – Buy a home with little upfront cash

 PMI Can Be Removed – Unlike FHA loans, PMI on conventional loans can be canceled

Flexible Property Types – Eligible for condos, single-family homes, and more

 No Upfront Mortgage Insurance Fee – FHA loans charge a 1.75% upfront MIP; conventional does not

 Build Equity While Renting Costs Rise – Get out of the rental cycle and start building wealth

 What You’ll Need to Qualify

To be eligible for a conventional loan with low or no down payment, lenders will look at the following:

Credit score – Generally 620 or higher (the higher your score, the best terms)

Debt-to-income ratio (DTI) – Ideally less than 43%, though some lenders are higher

Solid income and employment record

Proof of funds for down payment and closing

Homebuyer education course (necessary for some first-time homebuyer programs)

Your mortgage broker or lender can also see if you qualify and what low down payment program is best for your budget.

Insider’s Tip: Use Gift Funds or Assistance

Most conventional low down payment plans allow you to use:

Gifted funds from family

Grants from nonprofit or local housing programs

Down payment assistance from state agencies

In Virginia, for example, Virginia Housing offers down payment grants and second mortgages that can be paired with conventional mortgages.

 

A Mortgage Broker Can Simplify Things

Attempting to sort through these programs yourself—especially between conventional vs. FHA loans, sources of down payments, and lender conditions—can get really confusing.

An experienced mortgage broker can:

Identify lenders who will accept low down payments

Help you qualify for cancellation of PMI sooner

Walk you through the process of approval

Find programs of assistance that can reduce down payments

As a first-time homebuyer, it is logical to use the services of a professional who is familiar with low-down-payment conventional financing.

wrapping up : You Don’t Need 20% Down to Buy a Home

A low-down-payment conventional mortgage offers flexibility, cost savings, and entry into homeownership—especially for first-time buyers or individuals with excellent credit but minimal cash.

By choosing the right loan program and working with an experienced lender or mortgage broker, you can move forward with confidence toward homeownership—without tapping into your savings.