3% down conventional loans: HomeReady, Home Possible and Conventional 97
You do not need FHA to buy with 3% down. Fannie Mae and Freddie Mac each back a 3%-down conventional loan for lower-income buyers, and a standard 97% loan exists for everyone else.
The three programs side by side
| HomeReady (Fannie Mae) | Home Possible (Freddie Mac) | Conventional 97 / HomeOne | |
|---|---|---|---|
| Minimum down | 3% | 3% | 3% |
| Income limit | 80% of area median income (by property location) | 80% of area median income | None |
| First-time requirement | No | No | At least one borrower must be a first-time buyer (97% LTV) |
| Mortgage insurance | Reduced coverage (25% above 90% LTV) and no loan-level price adjustments for many borrowers | Reduced coverage (25% above 90% LTV) | Standard coverage (35% above 95% LTV) |
| Education | Required for first-time buyers (free online course) | Required for first-time buyers | Required for 97% LTV when all borrowers are first-time |
| Extra flexibilities | Boarder and accessory unit income; non-occupant co-borrowers | Sweat equity; non-occupant co-borrowers | Standard rules |
Why the income limit matters
HomeReady and Home Possible are not just about the down payment: their PMI is cheaper and their pricing adjustments are capped, which together can cut the monthly payment noticeably compared with a standard 97% loan or FHA. The limit — 80% of the area median income for the census tract where the home sits — is checked with a lookup tool, and it is the property location, not your home address, that counts. A buyer over the limit in one neighborhood may qualify a mile away.
Where the 3% can come from
All three allow the entire down payment to come from gifts, grants, or state down payment assistance seconds (Community Seconds or Affordable Seconds); none requires a minimum borrower contribution on a one-unit primary residence. Closing costs can be covered by seller concessions up to 3% of the price at 95% LTV and above.
What to watch
- Credit score: 620 minimum, but PMI pricing below 680 can erode the advantage — compare with FHA at that point.
- Loan limits: 3% down is available only within conforming limits; above that, expect 10% or more down on a jumbo.
- Reserves: automated underwriting may ask for one to two months of payments in savings after closing.
- PMI cancellation: same rules as any conventional loan — request at 80% LTV, automatic at 78%.
Frequently asked questions
Is 3% down a good idea?
It gets you in sooner and keeps cash for repairs and reserves; the cost is PMI and a higher payment. If prices in your market have been rising faster than you can save, waiting can cost more than PMI. If you have no emergency fund after closing, a low down payment is risky regardless of program.
Can I use HomeReady for a duplex?
Yes — HomeReady allows two-to-four unit primary residences, though the minimum down payment rises (5% for two units, higher for three to four) and rental income from the other units may be counted toward qualifying.
What if my income is just over 80% AMI?
Check a nearby neighborhood with a different AMI, consider the standard Conventional 97 (no income limit, standard PMI), or compare FHA. Lenders can run all three scenarios from one application.
Sources
Related: FHA vs conventional for a first-time buyer: which loan wins, and when · PMI for first-time buyers: what it costs and how to get rid of it · Gift funds for a down payment: the rules, the letter, the paper trail · Down payment assistance programs: how they work and how to find yours. Hub: First-time buyer.