How Much Down Payment Do You Need for a Conventional Loan?
The short answer: as little as 3%. But the down payment you choose affects your rate, your monthly payment, and whether you pay private mortgage insurance. Here is how each tier works, sourced directly from agency guidelines.
Down payment requirements by property type
| Property Type | Minimum Down Payment | Notes |
|---|---|---|
| Primary residence (1 unit) | 3% | First-time buyer required at 97% LTV; 5% for repeat buyers |
| Primary residence (2–4 units) | 15–25% | Per AUS findings |
| Second home | 10% | PMI required below 20% |
| Investment property (1 unit) | 15% | No gift funds permitted |
| Investment property (2–4 units) | 25% | No gift funds permitted |
The 3% down option — what you need to know
Putting 3% down is real, but it comes with specific conditions. When the LTV exceeds 95%, Fannie Mae requires a fixed-rate mortgage with a term up to 30 years. Adjustable-rate mortgages and high-balance loan amounts are not permitted at this tier. The property must be a one-unit primary residence, and at least one borrower must be a first-time homebuyer (no ownership interest in a primary residence in the past three years).
The PMI trade-off
Any down payment below 20% requires private mortgage insurance (PMI). PMI is not permanent on conventional loans — under the Homeowners Protection Act, you can request cancellation once your balance reaches 80% of the original value, and it automatically terminates at 78%. This is a key advantage over FHA, where MIP with less than 10% down stays for the life of the loan.
Down payment and your rate
A lower down payment means a higher LTV, which increases the loan-level price adjustment (LLPA) on your rate. Run the full monthly cost comparison — rate plus PMI — before deciding how much to put down.
The same home at four down payments (illustrative example, not a quote)
| Down payment | Cash down | Loan amount | Loan-to-value | PMI |
|---|---|---|---|---|
| 3% | $18,000 | $582,000 | 97% | Yes |
| 5% | $30,000 | $570,000 | 95% | Yes |
| 10% | $60,000 | $540,000 | 90% | Yes |
| 20% | $120,000 | $480,000 | 80% | No |
This table is based on a $600,000 purchase. Closing costs in California commonly run roughly 2–5% of the price, which is another $12,000 to $30,000 here. The 3% row also assumes you meet the first-time buyer and other conditions described above.
Choosing how much to put down
- Keep a cushion. Spending every dollar on the down payment leaves nothing for repairs, moving costs, or a slow month.
- Compare payments, not just percentages. A bigger down payment can lower both the loan amount and the mortgage insurance, but the savings per dollar differ at each step.
- Consider your timeline. If you will keep the loan for years, the PMI savings of a larger down payment add up. If you might sell soon, flexibility may be worth more.
Documenting where the money came from
Expect to provide two months of bank statements for each account. Large deposits that are not from payroll need an explanation and a paper trail, such as the sale of a car or a gift letter. Retirement account funds can count as assets, but withdrawals can have tax consequences, so consult a tax professional before you pull money out.
Questions to settle before you pick a percentage
Before choosing, decide how many months of living expenses you want left in the bank after closing, whether you expect to need cash for repairs or furnishings, and how long you plan to keep the loan. If those answers leave you short at 20%, a smaller down payment with PMI is a normal, reasonable structure, not a sign of weakness.
Frequently asked questions
Is it worth waiting to reach 20% down?
It depends on how fast prices and your savings move. PMI is removable, so putting less down and paying PMI for a few years is a common choice. We can show both options with your numbers.
Do I need to be a first-time buyer to put 5% down?
No. The first-time buyer condition applies to the 3% tier, not the 5% tier.
Can I use a mix of savings and a gift?
Yes, on many structures. The rules depend on the property type, so check the gift funds guide.
Related guides
- PMI costs and removal
- HomeReady
- Saving for a down payment and closing costs
- Payment calculator with taxes and PMI
Key takeaways
- Primary residence: 3% minimum for first-time buyers; 5% for repeat buyers.
- Second homes require at least 10% down.
- Investment properties require 15% (1 unit) to 25% (2–4 units) — no gift funds.
- Down payments below 20% require PMI, but PMI can be cancelled at 80% LTV.
- The 3% tier requires a fixed-rate loan, 1-unit primary, and at least one first-time homebuyer.
- The full down payment on a one-unit primary residence can come from gift funds from family.
- On a $600,000 purchase, the down payment ranges from $18,000 at 3% to $120,000 at 20%.
- Budget for closing costs of roughly 2–5% of the price on top of the down payment.
- Lenders typically want two months of statements showing where your funds came from.
Ready to explore your conventional loan options? Lendia can walk you through what you qualify for and find the right program for your goals.