Conventional Down Payment: 3%, 5% or 20%, and How It Changes PMI

What is the minimum down payment on a conventional loan?

As little as 3%, through Conventional 97, HomeReady (Fannie Mae), or Home Possible (Freddie Mac), per the Selling Guides (2026). Outside those programs, 5% is the common standard minimum, and 20% down is the point where PMI is no longer required.

So the real question isn't "what's the minimum," it's "which tier am I in." The 3% programs come with eligibility rules, generally a first-time-buyer requirement and/or income limits, which is why 5% is the number most repeat buyers plan around. And the old 20% figure people still quote at dinner parties was never a requirement; it's simply the threshold where PMI drops out of the picture. I've put buyers into homes at every one of these tiers, and the right one is a math question, not a pride question: it depends on your cash, your monthly comfort zone, and how long you'd otherwise wait to save more. If you're comparing conventional against every other loan type, the cross-program down payment guide runs that comparison; this page stays on the conventional mechanics.

Can you put 3% down on a conventional loan?

Yes. Three programs allow it: Conventional 97 (Fannie Mae (Freddie Mac HomeOne is the closest Freddie equivalent)), HomeReady (Fannie Mae), and Home Possible (Freddie Mac), each at 3% down, per the Selling Guides.

The fine print is where they differ. These programs are generally aimed at first-time buyers and/or income-limited borrowers: HomeReady and Home Possible carry income limits generally tied to area median income, and homebuyer education is required for some program and borrower combinations, per the Selling Guides. None of that is a reason to avoid them; it's a reason to check eligibility before you plan around the number. A 3%-down conventional loan starts at 97% LTV, so PMI applies from day one, but it's the cancellable kind, and your 3% is a head start toward the thresholds that end it. I cover which of the three programs fits which buyer, including how they stack up for first-timers, in the conventional first-time buyer guide.

How does your down payment change PMI?

One number controls it: 80% LTV. Put less than 20% down and your loan starts above that line, so PMI is generally required, per the CFPB. Put 20% or more down and no PMI is required, because you start at or below it.

Below the line, your down payment still matters, twice. First, it shapes the premium: PMI varies by credit score and LTV (and MI provider), so a 5%-down loan at 95% LTV typically prices better than a 3%-down loan at 97%. Second, it sets your head start toward cancellation. Under the Homeowners Protection Act of 1998, you can request cancellation at 80% LTV, it terminates automatically at 78%, and it must end by the loan midpoint regardless, all measured against the original value per the amortization schedule. More down means fewer points of LTV to pay through before those triggers hit. Here's the dollar version on a $400,000 purchase, computed from the program percentages: 3% down is $12,000, 5% is $20,000, and 20% is $80,000. That's an illustration, not a quote, and it deliberately shows no premium, because yours depends on your credit score and LTV. The full mechanics, what PMI costs, the cancellation paperwork, LPMI and single-premium structures, live in the conventional PMI guide; I won't duplicate them here.

One framing I give every buyer staring at this trade: don't treat PMI as the enemy and 20% as the goal. PMI is the fee that lets you buy with $12,000 instead of $80,000 on that same $400,000 house, and federal law guarantees it ends. Sometimes waiting years to save the difference costs more than the PMI ever would. Sometimes it doesn't. That's a fifteen-minute math conversation, not a rule of thumb.

Can the down payment be a gift?

Yes. Gift funds are allowed from approved sources (typically family and other donors the Selling Guides permit), documented per the Fannie Mae / Freddie Mac Selling Guides (gift letter, no repayment).

The documentation is the whole game here, and it's specific. The donor signs a gift letter stating the amount, their relationship to you, and that the money requires no repayment. The transfer itself gets papered: underwriting will want to see the funds moving from the donor to you or to the closing, consistent with the gift letter. Two things trip buyers up. First, the donor must be an approved source under the Selling Guides, typically family and certain other donors; people with a financial interest in the transaction, like the seller, the builder, or the agent, can't be gift donors. Second, timing: cash that appears in your account without a trail creates underwriting questions, so loop me in before the money moves, not after. Done right, a documented gift can fund part or all of a conventional down payment. If your gift conversation is part of a bigger first-home plan, including state down payment assistance, start with the first-time homebuyer down payment guide, which covers the cross-program picture, including the loan types that need less down than conventional, like VA, USDA, and FHA.