Conventional Loan Down Payment Requirements: 3%, 5%, and 20% Compared
A conventional loan generally requires just 3% to 5% down for eligible primary residences, but the right amount depends on your credit score, PMI cost, and monthly payment target. If you put less than 20% down, expect private mortgage insurance; 20% down removes PMI and usually lowers total housing cost.
For 2026, conforming loan limits reach $832,750, and lenders may add overlays above agency minimums.
3% Down Options
- Conventional 97: Allows 3% down for primary homes with 620+ credit and no income cap.
- HomeReady: Uses 3% down with income limits, often cheaper PMI for qualifying borrowers.
- Home Possible: Also offers 3% down, with reduced PMI and income caps tied to area median.
- Occupancy: These programs require you to live in the home; second homes usually need more.
PMI and Payment Tradeoffs
- Under 20%: Any down payment below 20% usually triggers PMI, adding monthly cost to your payment.
- PMI Range: Typical PMI runs about 0.46% to 1.5% annually, depending on risk and LTV.
- 20% Down: Putting 20% down removes PMI and can improve affordability more than a small rate change.
- 80% LTV: Many borrowers target 80% loan-to-value so they can request PMI cancellation later.
Credit and Property Type
- 620 Floor: Most conventional loans need at least 620 credit, though stronger scores get better pricing.
- 700+ Credit: Higher scores often make 5% down a better balance than stretching to 20%.
- Second Homes: Second homes commonly require 10% down or more, even when primary homes qualify lower.
- ARMs: Adjustable-rate mortgages often want 5% down, and some lenders tighten that with overlays.
Common Misconceptions
- Myth: You always need 20% down to buy a conventional home.
- Reality: Many primary residences qualify at 3% down, but PMI and pricing still affect the payment.
- Fix: Compare 3%, 5%, 10%, and 20% scenarios before choosing the cheapest cash-to-close option.
- Myth: Any lender will approve the agency minimum if you meet the guideline.
- Reality: Lender overlays can require higher credit, more reserves, or a larger down payment.
- Fix: Ask each lender about overlays before you lock in your down payment plan.
Frequently Asked Questions
What is the minimum down payment for a conventional loan?
Can I avoid PMI with a conventional loan?
Do second homes need a bigger down payment?
The Bottom Line Up Front
The optimal conventional down payment for most buyers is not 20% — it is the minimum that produces an acceptable monthly payment at your credit score. For 700+ credit buyers, 5% down with PMI cancellation at 80% LTV is usually the best balance of cash preservation and cost. Below 680 credit, the LLPA and PMI penalties at high LTV make a larger down payment worth considering — or switching to FHA where pricing does not punish low scores.
3% Down: Who Qualifies and What It Costs
Three programs offer 3% down on conventional loans. All require primary residence occupancy and at least a 620 credit score. The main differences are income limits and PMI pricing. See our full guide to conventional loans for more context.
Conventional 97 has no income limit — any first-time buyer at 620+ credit qualifies. HomeReady and Home Possible cap income at 80% of area median income but offer reduced PMI rates that can save $50–$100/month compared to standard PMI. If your income qualifies for HomeReady or Home Possible, those programs are cheaper than Conventional 97 even though the down payment is identical.
Deal Saver
HomeReady allows boarder income and non-occupant co-borrower income to help qualify. If you rent a room in your home or have a parent willing to co-sign, HomeReady can count that income for DTI purposes — a flexibility that standard Conventional 97 does not offer. Check your AMI eligibility at Fannie Mae’s lookup tool.
5%–19% Down: The PMI Sweet Spot
For repeat buyers or first-time buyers who want lower PMI, each 5% increment above 5% down produces a meaningful reduction in monthly PMI cost and a slight improvement in rate through lower LLPAs.
The most impactful threshold is 10% — PMI drops by roughly 40% compared to 5% down at the same credit score. Going from 10% to 15% provides another drop but with diminishing returns. The math suggests 10% down is the best value point for buyers with enough cash to reach it without depleting reserves.
| Down Payment | 740+ Credit | 700–739 | 660–699 | 620–659 |
|---|---|---|---|---|
| 3–5% | 0.25–0.40% | 0.40–0.65% | 0.65–1.10% | 1.10–1.50% |
| 10% | 0.15–0.25% | 0.25–0.40% | 0.40–0.70% | 0.70–1.00% |
| 15% | 0.10–0.18% | 0.18–0.30% | 0.30–0.50% | 0.50–0.75% |
| 20%+ | $0 | $0 | $0 | $0 |
20% Down: When It Makes Sense
Putting 20% down eliminates PMI, gives you the best rate pricing, and makes your offer stronger in competitive markets. On a $400,000 home, that is $80,000 in cash at closing.
The tradeoff is opportunity cost. That $80,000 tied up in home equity earns the mortgage interest rate (effectively) but cannot be deployed elsewhere. For borrowers with strong credit (740+) where PMI is already cheap, the math often favors putting 10% down and keeping reserves liquid. For borrowers with lower credit where PMI is expensive, 20% down produces larger monthly savings.
Where Down Payment Money Can Come From
Conventional loans accept down payment funds from personal savings, gift funds, DPA programs, and certain asset liquidation. The key requirement is documentation — lenders need a clear paper trail showing where the money originated.
Gift funds require a signed gift letter and donor bank statements proving the funds were available. Some conventional programs require the borrower to contribute at least 5% from personal funds on LTVs above 80%. HomeReady and Home Possible are exceptions — they allow 100% gift or DPA funding of the down payment. Check with your lender on which program allows full gift funding at your LTV.
Lender Reality Check
Using 401(k) or IRA funds for a down payment is technically allowed but usually a poor decision. Early withdrawal penalties (10%), income tax on the distribution, and the loss of compound growth make retirement accounts the most expensive down payment source available. Explore DPA programs and gift funds first.
Second Homes and Investment Property Down Payments
Second homes require a minimum 10% down. Investment properties require 15% for a single-unit rental and 25% for 2–4 units. Both carry higher rates and LLPAs than primary residence loans.
Reserves are also higher — most lenders require 2–6 months of PITI reserves for second homes and 6+ months for investment properties. If you are buying a multi-unit investment, the reserve requirement covers all financed properties, not just the new purchase.
File Guidance
If you are buying a 2–4 unit property as a primary residence (house-hacking), you only need 5% down and can count rental income from the other units toward qualification. This is a conventional rule, not a special program — and it is dramatically cheaper than buying the same property as an investor at 25% down.
What Credit Score Do You Need for a Conventional Loan in 2026?
A 620 FICO is the standard minimum for conventional loans, though some lenders overlay at 640 or 660 depending on the loan-to-value ratio and property type.
Credit score drives pricing through Loan Level Pricing Adjustments. At 740 and above, LLPAs are minimal and the borrower receives the best available rate. Between 680 and 739, adjustments add 0.25% to 0.75% in cost. Between 620 and 679, LLPAs can add 1% to 2.5% depending on LTV. These adjustments are layered, meaning a 650 score at 95% LTV pays significantly more than a 650 score at 80% LTV.
Below 620, most conventional lenders will not approve the file. Borrowers in that range should evaluate FHA loans, which accept scores down to 580 with a 3.5% down payment. For a deeper look at how scores affect your overall qualifying picture, see our credit score guide.
What Are the Conventional Loan DTI and Income Requirements?
Desktop Underwriter sets a 50% back-end DTI ceiling for conventional loans, though most lenders impose tighter overlays between 43% and 45% for borrowers below 720 credit.
Two years of consistent income history is standard. W-2 employees need recent pay stubs plus two years of W-2s. Self-employed borrowers provide two years of personal and business tax returns, and lenders average the net income. Declining income across the two-year period creates an underwriting challenge that often requires explanation letters and compensating factors.
Commission, bonus, and overtime income must be documented for at least 12 to 24 months to be counted. Gap employment of 30 days or more within the past two years requires written explanation. For more on how DTI affects your FHA options, see our FHA DTI guide.
The Bottom Line
The right down payment is the one that produces the lowest total cost at your credit score without draining your reserves. At 740+ credit, 5% down with cheap PMI is usually optimal. At 660 credit, 10%+ down reduces expensive PMI enough to justify the extra cash. At any credit level, 20% down eliminates PMI entirely but locks up significant capital. Run the numbers at your actual credit score and compare total monthly costs at each tier before deciding.
Frequently Asked Questions
Can I put 0% down on a conventional loan?
No. Conventional loans require at least 3% down. Zero-down options are only available through VA (military eligible) and USDA (rural/suburban eligible with income limits). If you need zero down and are not eligible for either, explore state DPA grants that may cover the full 3% conventional minimum.
Does PMI ever go away on a conventional loan?
Yes. PMI automatically cancels at 78% LTV (based on original value). You can request cancellation at 80% LTV. If the home has appreciated, a new appraisal can prove 80%+ equity for earlier cancellation. This is the major advantage over FHA, where MIP stays for the life of the loan.
Can I use a gift for the full down payment on conventional?
It depends on the program and LTV. HomeReady and Home Possible allow 100% gift-funded down payments. Standard Conventional 97 allows gifts but some lenders require borrower contribution from own funds at LTVs above 80%. Check with your lender for their specific gift policy.
Is it better to put 10% or 20% down?
At 740+ credit, 10% down with cheap PMI preserves cash and is often the better financial decision. At lower credit scores where PMI is expensive, 20% down can save $200+/month. Calculate both scenarios at your credit score and compare total monthly costs plus the opportunity cost of the extra cash.
What down payment do I need for an investment property?
15% minimum for a single-unit rental, 25% for 2–4 units. Rates and LLPAs are higher than primary residence. Most lenders also require 6+ months of PITI reserves covering all financed properties.
Last updated: April 18, 2026 · Reviewed by The Lenders Network Editorial Team