This is part of an ongoing series in which we address common questions among home buyers. Today’s question is: What is the lowest down payment for a conventional mortgage loan these days?
At a glance: The minimum down payment for a conventional home loan usually ranges between 3% to 5%, depending on the amount being borrowed and other factors.
But there are some credit unions and other organizations that offer 100% financing, which eliminates the need for a down payment altogether. Those programs are generally limited to a specific audience (i.e., their own members).
There are also some down payment assistance (DPA) programs offered by government and non-profit housing agencies. These programs are typically offered at the state or local level, so you’ll want to Google it with your city and state appended to the search.
Difference Between Conventional and Government Mortgages
Before we go any further, we should make a distinction between conventional and government-backed mortgage loans.
A conventional home loan is one that is not insured or guaranteed by any agency of the federal government. They are generated — and sometimes insured — entirely within the private sector.
This sets them apart from government-backed mortgage programs like FHA and VA. Those programs do receive some form of government guarantee or insurance (which protects the lender, by the way, and not the borrower).
Conventional mortgage loans are the most commonly used type of financing, with VA and FHA rounding out the top three.
Most of the guidelines and requirements for conventional mortgage loans come from Fannie Mae and Freddie Mac. These are the two government-sponsored organizations that buy and sell mortgage loans through the secondary market.
Borrowers and home buyers typically don’t deal directly with Fannie Mae and Freddie Mac. But the requirements used by those corporations are still important because they “trickle down” into the primary market where loans are made. So they can affect your ability to qualify for a mortgage.
Regardless of what type of loan program you use, the down payment timing is generally the same. Home buyers usually pay it at closing (minus whatever amount they paid up front, in the form of an earnest money deposit).
Lowest Down Payment for Conventional Loans
Getting back to the question at hand: What is the lowest possible down payment for a conventional mortgage loan. Both Fannie Mae and Freddie Mac offer programs that allow for 97% financing. This means a borrower could make a down payment as low as 3% of the purchase price.
In most cases, this is the lowest amount you can put down for a conventional mortgage loan. But there are some alternatives out there that allow for an even smaller down payment, as well as some that offer 100% financing. Credit unions are one such option.
Some Credit Unions Offer 100% Financing
These days, there are quite a few credit unions offering 100% financing. These programs are usually limited to well-qualified borrowers with solid credit and a history of financial responsibility.
There are far too many credit union programs to list on this page. Borrowers can explore their options by researching credit unions in their city or state, with an eye out for those that offer low or no-down-payment mortgage options. Industry credit unions are also an option, such as those that serve teachers or federal employees.
FHA Allows for a Down Payment of 3.5%
In most cases, the lowest possible down payment for a conventional loan is 3%, because that is the minimum requirement used by Fannie Mae and Freddie Mac. Some conventional mortgage products may require 5% down, particularly for those borrowers who have lower credit scores.
Borrowers who are trying to minimize their out-of-pocket expense should also look into the FHA loan program. This is not a conventional mortgage product, because it is insured by the Federal Housing Administration. But it’s still worth considering.
Eligible borrowers who use an FHA loan can qualify for up to 96.5% financing, which means making an investment of 3.5%. This closely matches the lowest down payment for conventional mortgage loans. The added benefit of going with FHA is that the qualification criteria are generally more flexible when compared to a conventional home loan.
To recap: The minimum down payment for most conventional home loans is 3%. Some credit unions may offer special programs with 100% financing for eligible borrowers. Additionally, there are some home buying and down payment assistance programs available at the local level that may be helpful.
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author