If affordability is a barrier to homeownership for you, there’s good news. You don’t have to come to the table with a 20% down payment. Some loan programs require only 3% of the purchase price. This is what you need to know about a 3% mortgage and how they can take you home faster.
3% of mortgage
Mortgages that require only a 3% down payment are often part of a special program and are open to anyone who meets the program’s requirements. Usually you have to be a First-time home buyer Or, you haven’t owned a home in the last three years to qualify. Additionally, if applicable, you must meet the program’s income limits.
1. Traditional 97
backing Fannie Maethe traditional 97 mortgage programs are sometimes called 97% LTV options, so they can lower 3% to fund 97% homes.
Down payments don’t need to come from your savings – funds can be gifts from friends and relatives, Grant or other forms of assistance. However, borrowers must qualify for a specific qualification to obtain this mortgage, including:
- First-time home buyers: At least one loan applicant must be the first home buyer in the past three years or not own the home.
- Homeownership Education Course: If all occupying home buyers are first-time buyers, at least one applicant must complete HomeBuyer Education Course.
- Debt Income (DTI) Ratio and Credit Score: Must meet traditional DTI requirements and have a credit score of 620 or higher.
- Housing requirements: The house you are buying must be you Main residencewhich means you’re going to live in it.
- Conformance loan restrictions: The purchase price of the home cannot exceed the current purchase Applicable loan restrictions2025 is $806,500 for one unit property in most parts of the country. In more expensive areas, the loan limit is $1,209,750.
“We’re looking forward to seeing you get a lot of money,” said Dan Green, president of Cincinnati-based mortgage company HomeBuyer.com.
But you’re lowering 20% to your home, so you have to pay too Private Mortgage Insurance (PMI) With monthly mortgage payments. Premium is based on loan to value (LTV) ratio (in this case 97%) and credit score. If you have 20% fairness in your home, you Stop paying PMI. Again, this rule applies to traditional loan programs.
2. Fanny May’s Home Leedy Program
The Fannie Mae-backed HomeReady program allows you to use funding to purchase more diverse facilities, including detached houses, up to four units of residential buildings, or condominiums. Eligibility requirements for HomeReady are as follows:
- Previous Homeownership Restrictions: You don’t have to be your first buyer to qualify.
- Homeownership Education Course: Applicants who are first-time buyers must take a homeowner education course.
- Credit score: The applicant’s minimum credit score must be 620.
- Income requirements: The applicant’s income cannot exceed 80% of the median local income.
- Housing requirements: The renter can purchase multi-family buildings, but at least one unit must be the owner’s main residence.
The HomeReady program also includes more flexible underwriting requirements, allowing you to count rental income towards income requirements. Additionally, while a 3% down payment is the standard, 100% of your donation comes from money received as gifts and down payment support.
3. FreddieMac Home-Available Programs
It’s similar to Fannie Mae’s Home Ready Program, Freddie MacHome-available programs have similar terms. One major difference allows unoccupied co-sponsors to donate funds to a 3% down payment for one unit of property. Some of the possible home requirements are:
- Homeownership Education Course: First-time home buyers should take part in homeownership education.
- Credit score: Applicants must have a credit score of 660.
- Income limit: The applicant’s income cannot exceed 80% of the median local income.
- Private mortgage insurance: You must pay PMI Premium.
- Housing requirements: The home must be your main residence.
In addition to the program features mentioned above, you can eliminate mortgage insurance when you reach 20% of your shares at home. Monthly mortgage payments.
4. HomeOne
Freddie Mac also supports the HomeOne program. These mortgages are designed for applicants with limited down payment funds and homeowners interested in Cash-out refinance. The requirements for getting a HomeOne mortgage are as follows:
- First-time home buyers: At least one applicant must be the first timer. That means they have never owned a home before, or at least not for the past three years.
- Credit score: At least one applicant must have what is considered Freddie Mac Available credit scores – This means a score based on a history sufficient to determine that, as Freddie Mac’s guidelines said, an individual has a track record of being a responsible borrower or that he has an “acceptable credit reputation.”
- Homeownership Education Course: If all borrowers involved in the purchase are first-time buyers, a home buyer education course is required.
- Housing requirements: All borrowers must occupy the home as their primary residence.
- Eligible Houses: HomeOne can only be used for purchases Single Unit PropertiesIt can include townhouses and condos. It cannot be used to purchase a manufactured home.
Unlike the other 3% mortgage programs, there is no income limit related to HomeOne loans. This program also has no geographical or location restrictions.
The program requires payment of PMI, but like any other program, mortgage insurance could be cancelled if a homeowner builds up a 20% stake in the household.
Pros and cons of 3% of mortgage
Though 3% of mortgages can make homeownership more accessible, there are a few drawbacks. The advantages and disadvantages to consider are:
How to apply for a 3% downturn mortgage as your first home buyer
Here are a few steps you can take as a first-time home buyer interested in applying for a 3% declined mortgage.
- Improve your credits if necessary: To prepare for the application process, work to improve your credit score as needed before applying with a lender. Most programs require a credit score of at least 620. A higher credit score can also help you qualify for a more competitive mortgage interest rate.
- I shop for my lender: Not all lenders offer the above 3% down mortgage program, so you need to shop to find a lender who offers the program you’re interested in.
- Take the HomeBuyer Education course: Many programs require first-time home buyers to qualify to take educational classes. Complete this requirement if necessary. Many courses are offered online.
- Apply for a mortgage with your chosen lender: Once you find a lender you want to work with and their eligibility requirements match your background, you need to complete a formal mortgage application. As part of the application process, the lender will request your financial information and documentation, so we will collect all the documents needed to get a smooth underwriting process in advance.
- Complete underwriting and home closure: If everything goes wrong during the mortgage underwriting process and the lender approves the loan, proceed to the closure process.
Other low-down payment options
Beyond the Fannie Mae and Freddie Mac Mortgage programs, other mortgage types featuring a 3% down payment allow future home buyers to access homeownership even with a low down payment. Options include:
- FHA loan – FHA loans insured by the Federal Housing Administration (FHA) allow borrowers to beat just 3.5% with a credit score of 580 or higher, or at least 10% with a score of 500. However, FHA borrowers below 20% must pay FHA Mortgage Insurance Premium (MIP) For the lifetime of the loan – most cases you cannot remove it to allow traditional loan private mortgage insurance. “FHA is a catch-all and serves home buyers who are not eligible for other programs,” Green says. “It’s intentionally comprehensive and we’re trying to support as many homeowners as possible. We don’t need to earn low or medium income to qualify.”
- USDA and VA loans – USDA and VA loans do not require a down payment, but only certain types of borrowers. USDA loan For renters in certain rural areas VA loan For active service members, veterans and surviving spouses. Neither of these are mortgage insurance, but USDA loans come with a guarantee fee, while VA loans come with a financing fee.
