Down payments as low as 3% exist, but the real floor depends on the loan type you use
The lowest down payment you can make on a house is 3 percent of the purchase price, available through conventional loans backed by Fannie Mae or Freddie Mac. A Federal Housing Administration (FHA) loan allows 3.5 percent down. U.S. Department of Veterans Affairs (VA) loans and U.S. Department of Agriculture (USDA) loans in may be able to access rural areas allow zero down. The catch: lower down payments mean higher monthly payments, mortgage insurance costs, and stricter credit and income requirements.
A 3 percent down payment on a $300,000 house is $9,000. On a $400,000 house, it is $12,000. The remaining amount you borrow becomes your mortgage, which you pay back over 15, 20, or 30 years plus interest. Lenders charge more for smaller down payments because the risk to them is higher — if you default, they recover less of their money when they sell the house.
Key Takeaways
- Conventional loans require a minimum 3 percent down payment; FHA loans require 3.5 percent; VA and USDA loans allow zero down in specific situations.
- Mortgage insurance (PMI on conventional loans, MIP on FHA loans) is mandatory when you put down less than 20 percent and adds $100 to $300+ per month to your payment.
- Credit score, debt-to-income ratio, and savings reserves matter more with low down payments — lenders offset the risk by tightening other requirements.
- Down payment assistance programs from state and local governments, nonprofits, and employers can reduce or cover the down payment entirely, though they vary by location and income.
How mortgage insurance works when you put down less than 20 percent
When your down payment is below 20 percent, the lender requires you to pay mortgage insurance. On a conventional loan, this is called Private Mortgage Insurance (PMI). On an FHA loan, it is called Mortgage Insurance Premium (MIP). Both protect the lender, not you — if you stop paying, the insurance covers part of the lender's loss.
PMI typically costs 0.5 to 1.5 percent of your loan amount per year, split into monthly payments. On a $300,000 house with 5 percent down ($15,000), you borrow $285,000. PMI might cost $1,425 to $4,275 per year, or roughly $120 to $360 per month. FHA mortgage insurance is similar but structured differently: you pay an upfront premium (usually 1.75 percent of the loan amount) at closing, plus an annual premium rolled into your monthly payment.
You can remove PMI from a conventional loan once you reach 20 percent equity in the home — either by paying down the principal or by the home appreciating in value. FHA mortgage insurance is harder to shed: on loans with less than 10 percent down, you pay MIP for the life of the loan. On loans with 10 percent or more down, MIP drops off after 11 years.
Credit score and debt requirements tighten with lower down payments
Lenders compensate for the risk of a low down payment by demanding stronger credit and income. A 20 percent down payment might get you approved with a 620 credit score; a 3 percent down payment typically requires 640 to 680. FHA loans are more forgiving on credit — some lenders accept scores as low as 580 — but charge higher mortgage insurance as a result.
Your debt-to-income ratio (DTI) — the percentage of your monthly income that goes to debt payments — also tightens. With a large down payment, lenders may allow a DTI up to 50 percent. With a 3 percent down payment, the limit often drops to 43 percent. If you earn $5,000 per month and already pay $1,500 in car loans, credit cards, and student loans, your new mortgage payment cannot exceed $2,150 (43 percent of $5,000 minus $1,500).
Lenders also look at your savings after closing. With a low down payment, they want proof you have cash reserves — typically two to six months of mortgage payments sitting in the bank. This shows you can cover the payment if your income drops temporarily.
VA loans and USDA loans offer zero down in specific cases
If you are a current or former member of the U.S. military, a VA loan allows you to buy a house with zero down payment. You must have a Certificate of may be able to access from the Department of Veterans Affairs, which you can request online through VA.gov or through your lender. VA loans have no mortgage insurance requirement, though you do pay a one-time VA funding fee (typically 1.4 to 3.6 percent of the loan amount, depending on your military branch and whether you have a service-connected disability).
If you are buying in a rural area, a USDA loan through the U.S. Department of Agriculture also allows zero down. USDA loans are for low- to moderate-income borrowers in areas the USDA classifies as rural. You can check whether your address qualifies on the USDA website. Like VA loans, USDA loans have no PMI, but you pay a may provide fee (typically 1 to 2 percent upfront, plus 0.35 percent annually).
Down payment assistance programs can reduce or eliminate what you owe upfront
Many states, cities, nonprofits, and employers offer down payment assistance. These programs fall into three categories: grants (money you do not repay), forgivable loans (loans that disappear if you stay in the house for a set period), and second mortgages (loans you repay on a separate schedule). The amount varies from $2,000 to $50,000 or more, depending on the program and your income.
State and local programs are the most common. California's CalHFA program, New York's Homes for New Yorkers, and Massachusetts' MassHousing all offer down payment help. Many require you to take a homebuyer education course (usually online, 4 to 8 hours) and meet income limits. Some are tied to specific lenders or loan types. Search your state's housing finance agency website or call 211 (a free referral line) to find programs in your area.
Employer programs are less common but growing. Some large employers, nonprofits, and government agencies offer down payment matching or direct assistance. Ask your HR department whether your employer has a homebuyer program. Some unions also offer down payment help to members.
Comparing 3 percent down, FHA, and zero-down options side by side
| Loan Type | Minimum Down Payment | Mortgage Insurance | Credit Score Requirement | Who Qualifies |
|---|---|---|---|---|
| Conventional (3% down) | 3% | PMI required; removable at 20% equity | 640–680 typical | Anyone with income and credit |
| FHA | 3.5% | MIP required; permanent if down < 10% | 580–640 typical | Anyone; more forgiving on credit |
| VA | 0% | None; funding fee instead | 620 typical | Current/former military with COE |
| USDA | 0% | None; may provide fee instead | 620 typical | Low-to-moderate income in rural areas |
What happens to your monthly payment as down payment shrinks
The smaller your down payment, the larger your monthly mortgage payment. On a $300,000 house at 7 percent interest over 30 years, here is how the payment changes:
- 20 percent down ($60,000): You borrow $240,000. Principal and interest: roughly $1,596 per month. No mortgage insurance.
- 10 percent down ($30,000): You borrow $270,000. Principal and interest: roughly $1,797 per month, plus PMI of $135–$405 per month. Total: $1,932–$2,202.
- 3 percent down ($9,000): You borrow $291,000. Principal and interest: roughly $1,938 per month, plus PMI of $146–$437 per month. Total: $2,084–$2,375.
The difference between 20 percent down and 3 percent down is roughly $500 per month in this scenario. Over 30 years, that adds up to $180,000 in extra payments. However, if you cannot save $60,000 for a 20 percent down payment, waiting five more years to save it may not be realistic — buying now with 3 percent down and refinancing later when you have more equity can make sense.
Frequently Asked Questions
Can I use a gift from family to cover my down payment?
Yes. Most lenders allow down payment gifts from family members, but they require a signed gift letter stating the money is a gift, not a loan you must repay. The gift giver does not need to be on the mortgage. Some lenders limit how much of your down payment can be a gift; others allow 100 percent. Ask your lender upfront.
What if I have bad credit but want to put down 3 percent?
Most lenders will not approve a 3 percent conventional loan with a credit score below 640. FHA loans are more flexible and accept scores as low as 580, but you will pay higher mortgage insurance. Your other option is to wait 6 to 12 months, pay down existing debt, and rebuild your credit score before applying.
Does a larger down payment always mean a lower interest rate?
Usually, yes — lenders offer slightly lower rates to borrowers with larger down payments because the risk is lower. The difference is typically 0.25 to 0.5 percent. However, rates change daily based on market conditions, so the rate you get depends on when you lock it in, not just your down payment size.
Can I remove PMI early if I pay extra toward my principal?
Yes, but only after you reach 20 percent equity. If you pay extra principal and your home appreciates, you can reach that threshold faster. Once you hit 20 percent equity, contact your lender and request PMI removal in writing. Some lenders remove it automatically; others require you to ask.
What is the difference between a down payment and closing costs?
Your down payment is the money you give the seller toward the purchase price. Closing costs are fees you pay to the lender, title company, and other parties — typically 2 to 5 percent of the loan amount. You must pay both. Some down payment assistance programs cover closing costs too; others cover only the down payment.