Conventional loans start at 3 percent down, but that's not the full picture
The lowest down payment for a conventional loan is 3 percent of the home's purchase price. If you're buying a $300,000 home, that's $9,000. However, putting down only 3 percent triggers private mortgage insurance (PMI), which adds to your monthly payment and total cost. Most lenders also require a credit score of at least 620 to 640 for a 3 percent down loan, though scores of 680 and above get better rates and terms.
The reason 3 percent exists at all is that lenders need some skin in the game from you, but conventional loans are backed by Fannie Mae and Freddie Mac, which allow this lower threshold. Government-backed loans like FHA can go lower—down to 3.5 percent—but they have their own insurance costs and rules. If you're comparing options, the real question isn't just the down payment amount; it's the total monthly cost once insurance and interest are factored in.
Key Takeaways
- Conventional loans allow down payments as low as 3 percent, but you'll pay private mortgage insurance (PMI) each month until you reach 20 percent equity.
- Your credit score affects whether you can get a 3 percent loan at all, and it directly changes your interest rate and PMI cost.
- PMI typically costs 0.5 to 1.5 percent of the loan amount per year, split into monthly payments, and can add $100 to $300+ to your mortgage payment.
- You can remove PMI once you reach 20 percent equity through home appreciation or extra payments, but this takes years on a 3 percent down loan.
- FHA loans go down to 3.5 percent but charge mortgage insurance for the life of the loan, making them more expensive long-term than conventional loans with PMI you can drop.
How private mortgage insurance works when you put down 3 percent
When you borrow 97 percent of the home's value, the lender is taking on risk. If you default and the home sells for less than you owe, the lender loses money. PMI protects the lender, not you. The insurance premium is calculated as a percentage of your loan amount and is usually paid monthly as part of your mortgage payment.
The cost varies by lender, loan amount, credit score, and loan-to-value ratio (LTV). A borrower with a 740 credit score putting 3 percent down might pay 0.75 percent of the loan annually; someone with a 620 score might pay 1.5 percent. On a $291,000 loan (3 percent down on a $300,000 home), that's a difference between roughly $218 and $436 per month in PMI alone.
PMI stays on your loan until you reach 20 percent equity in the home. At 3 percent down, you start at 3 percent equity, so you need to build 17 percentage points. On a 30-year loan, this takes roughly 11 to 15 years of regular payments, depending on home appreciation and extra payments you make. Some lenders allow you to request PMI removal once you hit 20 percent equity; others require you to wait until the midpoint of the loan term.
Credit score requirements and how they affect your rate
Most lenders won't offer a 3 percent down conventional loan to anyone below a 620 credit score. Many require 640 or higher. If your score is below that range, you may need to save for a larger down payment (5 to 10 percent) or look at FHA loans, which allow scores as low as 500 with a 10 percent down payment.
Your credit score also determines your interest rate. The difference between a 640 score and a 760 score on a conventional loan can be 0.5 to 1 percent in interest rate. On a $291,000 loan, that's $150 to $300 more per month. Combined with PMI, a lower credit score at 3 percent down becomes significantly more expensive than waiting to save for a larger down payment or improving your score first.
Comparing 3 percent down to other down payment options
| Down Payment | PMI Required | Typical Credit Score Needed | Loan-to-Value Ratio |
|---|---|---|---|
| 3% | Yes | 620–640+ | 97% |
| 5% | Yes | 620+ | 95% |
| 10% | Yes | 620+ | 90% |
| 15% | Yes (sometimes waived) | 620+ | 85% |
| 20% | No | 620+ | 80% |
At 5 percent down, PMI is still required, but the monthly cost is lower because your LTV is 95 instead of 97. You also reach 20 percent equity faster. The tradeoff is you need $15,000 instead of $9,000 on a $300,000 home—a difference that matters if you're tight on cash.
At 10 percent down, PMI costs drop further, and you're building equity faster. Many first-time buyers find this the sweet spot: low enough to be achievable, high enough to keep PMI manageable. At 20 percent down, PMI disappears entirely, but you need $60,000 on a $300,000 home, which takes years to save for many people.
What happens to your monthly payment at 3 percent down
On a $300,000 home with a 3 percent down payment, a 7 percent interest rate, and a 30-year loan, your breakdown looks roughly like this: principal and interest around $1,935, PMI around $220 to $290, property taxes and insurance around $400 to $600 (varies by location). Your total monthly payment is $2,555 to $2,825 before taxes and insurance are added.
If you had saved for 10 percent down instead, your principal and interest drops to $1,827, PMI drops to $110 to $150, and your total is roughly $2,337 to $2,577. That's $200 to $250 less per month. Over 15 years (until PMI drops off the 3 percent loan), that's $36,000 to $45,000 in extra cost for the convenience of putting down less upfront.
The math changes if home values rise. If your home appreciates 3 percent per year, you reach 20 percent equity faster and can drop PMI sooner. But you can't count on that. If the market stalls or declines, you're stuck paying PMI for the full term.
When 3 percent down makes sense and when it doesn't
A 3 percent down conventional loan makes sense if you have a solid credit score (680+), stable income, and you're buying in a market where prices are rising or stable. It also makes sense if you're in a high-cost area where saving 20 percent down would take a decade. In that case, buying now with PMI and building equity is better than renting and waiting.
It makes less sense if your credit score is below 660, your income is variable, or you're buying in a declining market. In those cases, the higher interest rate and PMI costs compound, and you're better off waiting to improve your score or save more. It also makes less sense if you can save 5 to 10 percent in a year or two; the PMI savings over time outweigh the delay.
FHA loans at 3.5 percent down are worth comparing if your credit score is below 640 or if you're self-employed or have recent credit issues. However, FHA mortgage insurance lasts the life of the loan if you put down less than 10 percent, making it more expensive long-term than a conventional loan where PMI eventually drops off.
How to remove PMI once you reach 20 percent equity
PMI removal is not automatic. You have to request it. Once you reach 20 percent equity—through a combination of payments and home appreciation—contact your lender and ask for PMI removal. You may need to order an appraisal to prove the home's current value, which costs $300 to $500.
Some lenders have rules about when you can request removal. Federal law requires lenders to remove PMI automatically at 22 percent equity if you're current on payments, but you can request it earlier at 20 percent. If you've made extra principal payments or the home has appreciated, you may reach 20 percent equity in 8 to 12 years instead of 15.
Keep records of your payments and track your home's value. If you refinance, PMI doesn't automatically transfer to the new loan; you'll need to decide whether to refinance into a loan without PMI (if you have enough equity) or accept PMI on the new loan.
Frequently Asked Questions
Can I get a conventional loan with less than 3 percent down?
No. Fannie Mae and Freddie Mac set 3 percent as the minimum for conventional loans. FHA loans go to 3.5 percent, and some state and local first-time buyer programs go lower, but those have their own rules and insurance costs. If you can't save 3 percent, look into down payment assistance programs through your city or county.
Does my down payment affect my interest rate?
Yes. A larger down payment signals lower risk to the lender, so you get a better rate. The difference between 3 percent and 20 percent down can be 0.25 to 0.75 percent in interest rate, depending on your credit score and the lender. Combined with PMI, a 3 percent down loan costs significantly more over time.
What if I can't afford PMI?
If PMI pushes your monthly payment above what you can afford, you're not ready for a 3 percent down loan. Save for 5 to 10 percent down instead, which lowers PMI and your total payment. Alternatively, look into down payment assistance programs or delay buying until your income rises or your credit score improves.
Is PMI tax deductible?
PMI was tax deductible under certain income limits, but that deduction expired at the end of 2025. Check with a tax professional about your specific situation, as rules change year to year. Even if it were deductible, the tax benefit is usually much smaller than the actual PMI cost.
Should I choose FHA or conventional at 3 percent down?
Conventional is usually cheaper long-term because PMI drops off at 20 percent equity. FHA mortgage insurance lasts the life of the loan if you put down less than 10 percent, making it more expensive overall. Choose FHA only if your credit score is too low for conventional or if you have other credit issues that make conventional rates unaffordable.