Three percent down on a $400,000 house is $12,000. That’s the number most buyers hear first, and it’s accurate: a conventional loan down payment can be as low as 3% on a one-unit primary residence. What gets left out of that headline is everything that decides whether you qualify for 3%, and what that choice costs you over the next five years.
Lenders price risk, and the down payment is only one of the inputs they look at. It’s rarely the most important one. Understanding how the pieces fit together keeps you out of two expensive traps: putting down far more than you needed to, or putting down so little that the mortgage insurance and rate bump eat the savings.
The 3% Floor Is Real, but It Comes With Conditions
The standard 97% loan-to-value program through Fannie Mae and Freddie Mac is what makes 3% possible. It applies to a single-family home you’ll occupy as your primary residence, and it typically requires a middle credit score of at least 620. Condos can qualify, but only if the project itself is warrantable, which is a separate approval process that trips up more buyers than the down payment ever does.
Drop below a 620 score and the 3% option closes. You’d be looking at a larger down payment, a different loan type, or a few months of credit repair first. That’s the real gate, not the cash.
The 20% Number Won’t Die, and Mortgage Insurance Is Why
Twenty percent isn’t a rule. It’s the point where private mortgage insurance falls away, and PMI is the entire reason people fixate on it.
On a $400,000 purchase with 3% down, you’re borrowing $388,000. PMI on a loan that size typically runs somewhere between 0.3% and 1.1% of the loan amount per year depending on your credit score. At 0.55%, that’s about $2,134 annually, or roughly $178 added to your payment every month. On a 760 score it might be closer to $110. On a 640 score, closer to $250.
How PMI Actually Goes Away
You don’t have to refinance to escape it. Federal law requires servicers to terminate PMI automatically once your balance reaches 78% of the original purchase price based on the normal amortization schedule. You can also request removal at 80%, though most servicers want a clean payment history and may require an appraisal. After two years, some lenders will consider current market value rather than the original price, which matters a lot if home values in your area have climbed.
Your Down Payment Percentage Changes With the Property
The 3% figure follows the occupancy type, not the buyer. The same borrower with the same income and credit can face very different requirements depending on what they’re buying:
- Single-family home, one unit, primary residence: 3% minimum
- Duplex you plan to live in: 15% minimum
- Three- or four-unit property you’ll occupy: 25% minimum
- Second home: 10% minimum
- Investment property: 15% minimum, and often more once rental income and reserve rules are applied
That duplex rule catches people off guard. House hacking with a 3% down conventional loan isn’t a thing; you’d need 15% down or a different program entirely.
Where the Down Payment Money Is Allowed to Come From
On a one-unit primary residence, the entire down payment can be a gift from a family member or a documented grant. That’s a genuine advantage over how many people assume lending works. You’ll need a signed gift letter stating the money is a gift with no repayment expected, plus paper trail showing where it came from.
Down payment assistance programs at the state and local level work too, and a fair number of them are structured to work alongside conventional financing rather than FHA only. Borrowed money is mostly off the table for the down payment itself, though a loan secured against an asset you already own is sometimes acceptable. Lenders will want 60 days of bank statements and a written explanation for any large deposit that doesn’t look like a paycheck.
Your Down Payment Size Moves Your Interest Rate
Loan-level price adjustments mean a 3% down loan with a 740 score prices differently than a 20% down loan with the same score. The gap is usually small, maybe an eighth to a quarter of a point in rate, but it compounds over thirty years. What actually moves a conventional mortgage quote is worth reading before you assume a bigger down payment buys you a better deal, because credit score and loan-to-value interact in ways that aren’t obvious from a rate table.
Run the comparison on total monthly cost, not rate alone. A lower rate with $300 of PMI attached can lose to a slightly higher rate with none.
Credit Score and Down Payment Are a Package Deal
These two numbers get quoted separately but they’re evaluated together. A 640 score with 20% down might price better than a 700 score with 3% down, because the LTV adjustment can outweigh the credit tier. Conversely, a strong score makes a low down payment much cheaper than most people expect.
If you’re sitting at 660 and wondering whether to wait, what credit score you actually need for a conventional loan breaks down the tiers by down payment percentage, including the cutoff points where pricing improves.
Conventional Versus FHA on the Down Payment Question
FHA requires 3.5% down, so conventional wins on the minimum. But FHA is more forgiving on credit, going down to 500 with 10% down, and it’s more flexible on gift funds and seller credits. The trade-off is mortgage insurance: FHA charges a 1.75% upfront premium plus annual MIP that, in many cases, lasts the life of the loan. Conventional PMI is cancellable.
On a $350,000 purchase, the difference between 3% and 3.5% is $1,750. The difference in mortgage insurance over seven years can be $10,000 or more. FHA versus conventional lays out the crossover points more precisely, and if your credit is the constraint, the four numbers FHA lenders check explains what actually gets an approval across the line.
The Three Numbers to Work Out Before You Tour a House
The down payment is one of three cash requirements, and the other two surprise people more often. Take a $400,000 purchase with 3% down:
- Down payment: $12,000
- Closing costs: roughly 2% to 5% of the price, so $8,000 to $20,000. Budget 2.5% and you’re at $10,000.
- Cash reserves: usually one to two months of full housing payment after closing, more if your LTV is high or you’re buying a multi-unit. At a $2,600 payment, that’s $2,600 to $5,200.
Total cash to close lands around $27,000 on a house where the down payment was “only” $12,000. That gap is where deals fall apart in the final week. What lenders actually check before they say yes covers the reserve and documentation rules in more detail, including how they’re applied differently at 97% LTV.
Work out all three figures with a loan officer before you start touring homes. Ask specifically what reserve requirement applies to your scenario, and get the closing cost estimate in writing rather than a verbal range. Once you have those three numbers, the question stops being “how much should I put down” and becomes “how much house can I buy without draining my savings account.” That’s a far more useful question, and it’s the one that keeps you solvent after the movers leave.