The Minimum Down Payment Needed for a 30-Year Fixed-Rate Mortgage

The 30-year fixed-rate mortgage loan is by far the most popular of all the home loan options. So lately, we’ve been publishing a series of tutorials on this particular product. Today we’ll answer the question:

What are the down payment requirements for a 30-year fixed mortgage?

The short answer is that it depends on the type of loan you’re using:

• VA mortgages can cover the entire purchase price and require zero down.
• FHA loans have a down payment as low as 3.5% of the purchase price.
• Some conventional loans allow for a 3% upfront investment, with caveats.

All three of these options are available with a fixed rate and a 30-year term. The 30-year term allows you to reduce the size of your monthly payments, by spreading them out over a longer period of time.

Minimum Down Payment for a 30-Year Mortgage

When you take out a loan to buy a house, you have a lot of choices and options to consider. One of the major choices has to do with the length of the repayment window or “term.”

Most home buyers in the U.S. choose the 30-year fixed-rate mortgage, due to the benefits explained here. The biggest advantage relates to the monthly payments. By choosing the longest repayment term available, borrowers can minimize the size of their monthly payments and improve affordability.

But what are the down payment requirements for this type of loan?

The minimum required investment for a standard 30-year fixed mortgage typically ranges from 3% to 3.5%. That’s for FHA and conventional financing. Military members and veterans who qualify for the VA loan program can take out a 30-year fixed with zero down.

So let’s explore these options one at a time:

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Conventional Loans: 3% Down

A conventional home loan is one that is not insured or guaranteed by the federal government. This label is used to distinguish regular mortgage products from government-backed programs like FHA and VA.

Most home buyers use conventional loans when buying a house.

The down payment requirements for a 30-year conventional loan can vary depending on the amount being borrowed and other factors. The minimum for most borrowers is 3% of the home value.

That’s because Freddie Mac and Fannie Mae (the government-sponsored corporations that buy mortgages from lenders) allow financing up to 97% of the home’s value. Specifically, they both offer two different 30-year mortgage products with a 3% down payment:

• Fannie Mae HomeReady: Generally intended for low-income borrowers with income that does not exceed 80% of the local median. The borrower does not have to be a first time buyer.
• Fannie Mae Standard 97% LTV Loan: At least one borrower must be a first-time buyer, defined as someone who has not owned a home within the past three years. There are no income limits or restrictions.
• Freddie Mac Home Possible: Intended for low-income borrowers with income that does not exceed 80% of the local median. The borrower does not have to be a first time buyer.
• Freddie Mac HomeOne: At least one borrower must be a first-time buyer, defined as someone with “no ownership interest in a residential property” during the past three years. There are no income restrictions.

If you don’t fit into one of these specialty programs, you might have to put more money down. Lenders typically require at least 5% down for a standard 30-year fixed mortgage. But this varies.

These products also require private mortgage insurance (PMI), which is usually mandatory when the loan-to-value ratio exceeds 80%. But PMI can typically be cancelled when the loan balance drops below 80% of the home’s original value.

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FHA-Insured Mortgages: 3.5% Down

The Federal Housing Administration (FHA) loan program has a down payment requirement of 3.5% on all loans, including the 30-year fixed mortgage.

This program is open to both repeat and first-time home buyers, but it’s particularly popular among first-time buyers. According to the Federal Housing Administration, more than 80% of FHA loans issued last year went to first-time home buyers. And most of them were 30-year fixed mortgages.

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VA Loans for Military Borrowers: 0% Down

Most military members and veterans with honorable service qualify for the VA loan program. This program does not require a down payment, even for a 30-year fixed mortgage. Eligible borrowers can finance 100% of the purchase when using a VA loan, a major benefit.

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Jumbo Loans May Require a Bigger Investment

As you can see, the minimum down payment needed for a 30-year mortgage can vary based on the type of home loan you’re using. The required upfront investment can range from 0% for a VA loan to 3.5% for FHA.

The size of the loan can also affect the down payment requirement. For example, so-called “jumbo loans” often require borrowers to put more money down up front, due to the higher level of risk for the lender.

A jumbo loan is one that exceeds the maximum size limits for acquisition by Freddie Mac and Fannie Mae. A jumbo or “non-conforming” loan cannot be sold to Freddie or Fannie. They’re available in 30-year fixed-rate form and other term lengths as well.

Conforming loan limits can vary by county because they are based on median home prices. You can find the limits for your county on the FHFA.gov website.

Larger loans create a bigger risk to the lender. So borrowers who use them often encounter higher down payment requirements, sometimes up to 20% or more.

But this can vary. Some lenders that offer 30-year jumbo mortgage products will allow for smaller down payments, especially for well-qualified borrowers. So you really have to shop around.

Using Gift Money From a Family Member

If you can’t afford the minimum down payment for a 30-year fixed-rate mortgage using your own funds, you might want to consider using gift money.

A “gift money” scenario occurs when an approved third-party donor (such as a family member) gives the home buyer money to put toward their down payment or closing costs.

All of the 30-year fixed-rate mortgage loan options mentioned above allow gift money to be used. This strategy can help home buyers who are otherwise well-qualified for homeownership get over the initial hurdle of making a down payment.

There are other forms of assistance as well, including grants and forgivable loans.

Key Point: A 20% Investment Is Rarely Needed

There is a common misconception among home buyers and borrowers that a 20% down payment is required for all 30-year fixed mortgage loans.

But, as we’ve just discussed, this is not the case. There are many loan options today that allow borrowers to put down as little as 3% for a 30-year home loan. This includes both FHA and conventional financing.

If 20% were the standard requirement for all loans, the mortgage industry would lose a lot of business. The truth is that most borrowers simply can’t afford to put that much money down. In order to increase their loan volume, mortgage lenders offer flexible options for borrowers with limited funds.