A 20% down payment on a $350,000 house is $70,000. Most first-time buyers don’t have $70,000 sitting in a savings account, and they don’t need it. There are several mortgage types built specifically for people putting down 3.5%, 3%, or in a few cases nothing at all. The trick is knowing which one fits your situation, because two loans with the same down payment can cost wildly different amounts over five years.
Here’s how the main low down payment options work, who qualifies for each, and where the hidden costs sit.
FHA Loans: The 3.5% Workhorse
FHA loans are the default answer for buyers with limited savings, and for good reason. You need 3.5% down and a credit score of 580 or better. On a $350,000 purchase that’s $12,250, and FHA allows the down payment to come from a gift, a grant, or a down payment assistance program.
The catch is mortgage insurance. FHA charges an upfront premium of 1.75% of the loan amount, which gets rolled into the balance, plus an annual premium of roughly 0.55% paid monthly. If you put down less than 10%, that annual premium typically stays for the life of the loan. On a $337,750 balance, that’s about $155 a month that never goes away unless you refinance out of it.
FHA also has property condition standards that conventional loans don’t. Peeling paint, a bad roof, or a failing furnace can stall a deal. Sellers sometimes price that hassle in, which matters in a competitive market.
Conventional 97 and the 3% Programs
Fannie Mae’s Conventional 97 lets you buy with 3% down, and Freddie Mac offers the same through Home Possible. These aren’t niche products anymore. The 3% figure is real, and on that same $350,000 house it’s $10,500.
Two things to understand:
- Income limits apply. HomeReady and Home Possible cap borrower income at 80% of the area median income, though Fannie and Freddie have expanded some eligibility in recent years.
- Private mortgage insurance is cancellable. Unlike FHA’s lifetime premium, conventional PMI drops off automatically at 78% loan-to-value and can be removed earlier with an appraisal. That’s a meaningful long-term difference.
Conventional loans also reward good credit more than FHA does. A 760 score might get you a rate half a point below what FHA would offer, which can offset the slightly higher insurance cost. If your credit is above 700, run the conventional numbers before assuming FHA is cheaper.
VA Loans: Zero Down for Eligible Borrowers
If you’ve served in the military, a VA loan is hard to beat. No down payment, no monthly mortgage insurance, and competitive rates. The tradeoff is a funding fee: 2.15% of the loan amount on a first use with nothing down, which is usually financed into the loan. Disabled veterans are exempt.
The zero-down structure is why VA buyers often win bidding wars against FHA buyers with the same budget. A seller comparing a VA offer to a 3.5% FHA offer sees a buyer who isn’t stretching for cash at closing.
USDA Loans: 0% Down Outside Metro Areas
The USDA’s Single Family Housing Guaranteed Loan program offers 100% financing for properties in eligible rural areas. Eligibility is based on the property location, not your job, and plenty of towns within commuting distance of mid-size cities qualify.
Costs run about 1% upfront and 0.35% annually, notably cheaper than FHA’s mortgage insurance. Income limits apply, generally capped at 115% of the area median. The property must be your primary residence, so this won’t work for a rental.
If you’re weighing how occupancy rules change your options, the difference between primary residence mortgage types and what living there actually unlocks is worth reading before you rule anything in or out.
Piggyback Loans and Down Payment Assistance
Two smaller tools fill the gap for buyers who want to avoid mortgage insurance entirely.
The 80/10/10 structure
You take a first mortgage for 80% of the purchase price, a second mortgage for 10%, and pay 10% cash. The second loan usually carries a higher rate, but you skip PMI. This made sense when PMI was expensive; today it’s a closer call and depends on your second-lien rate.
Down payment assistance programs
State housing finance agencies, cities, and nonprofits run thousands of these programs. Most take the form of a silent second mortgage forgivable after a set number of years, or a grant. They’re frequently stacked on top of an FHA or conventional loan. Many buyers never check, which is money left on the table.
If you want a broader rundown of the options, this piece on the best mortgage types for low down payment buyers without 20% saved covers the combinations that tend to work.
The Down Payment Is the Least Interesting Number
A 3% down payment and a 3.5% down payment look almost identical on paper. The loans behind them don’t. When you compare offers, look at these instead:
- Total monthly payment, including taxes, insurance, HOA dues, and mortgage insurance.
- How long the mortgage insurance lasts and whether it can be removed.
- Upfront fees rolled into the balance, which quietly raise your loan amount.
- Cash needed at closing, which is the down payment plus 2% to 5% in closing costs.
On a $350,000 purchase, a loan with a 3% down payment but permanent insurance can cost more over seven years than one with 5% down and cancellable PMI. Reading a mortgage loan types comparison chart row by row, not just the down payment column, is a habit that pays for itself.
What Lenders Look At Beyond Your Savings
Low down payment programs compensate for thin savings with stricter rules elsewhere. Expect a debt-to-income ratio under about 50%, documented income, and reserves in some cases. Gift funds are fine for most programs but need a paper trail: a signed gift letter, the donor’s bank statement, and proof the money landed in your account.
Self-employed buyers should plan on two years of tax returns and possibly a longer underwriting timeline. It’s the same paperwork whether you put down 3% or 20%, so don’t let it push you toward a bigger down payment you can’t comfortably afford.
Shop Three Lenders, Compare Five-Year Costs
The same borrower can get quoted rates that differ by half a percentage point across three lenders. On a $340,000 loan that’s roughly $100 a month, or $6,000 over five years. Get a Loan Estimate from at least three sources, including a credit union and an independent mortgage broker, and compare them side by side on the same day.
The cheapest advertised product rarely is the cheapest loan for you. It depends on your credit score, how long you plan to stay, whether you’re in a rural area, and whether you have access to a VA entitlement. A loan officer who asks those questions before quoting a rate is worth more than one who leads with the lowest headline number, which is why the cheapest type of mortgage loan is a match, not a product.
Before you apply, pull your credit reports, gather two months of bank statements and recent pay stubs, and get a written pre-approval rather than a pre-qualification. Sellers in most markets treat those two documents very differently, and a pre-approval on a low down payment program signals you’ve already been underwritten, not just estimated.