Conventional loan down payment requirements
One of the most significant barriers to buying a home is the down payment. However, there’s a common misconception about conventional loan qualifications that you must have a 20% down payment. This puts many people off homeownership altogether.
The good news is that the minimum down payment for conventional loans is just 3%. However, this will depend on your circumstances.
Homebuyers may be able to put down 3%, 5%, 10%, or 20% depending on their circumstances. Each down payment percentage will have different private mortgage insurance (PMI) rules and mortgages rates attached to it.
The lower your down payment, the higher your interest rates will be and the more PMI you will be expected to pay. The more you put down, the more you can save on your mortgage rates and PMI, as you can see below.
Conventional loan down payment comparison
|3% Down||Highest Mortgage Rate||Highest PMI|
|5% Down||Better Mortgage Rate||Lower PMI|
|10% Down||Better Mortgage Rate||Lowest PMI|
|20% Down||Best Mortgage Rate||No PMI|
While low down payments might seem ideal, the higher rates and insurance are something to factor into your decision. You may decide to wait and save more of a down payment before purchasing a home to save on these costs.
Conventional loan credit score requirements
The other key consideration when buying a home is your credit score. This will determine how likely you are to be approved, but it also affects your interest rate and the minimum down payment that lenders will want to see from you.
In most cases, you will need a credit score of 620 or above to qualify for a conventional loan.
Those with credit scores of 740 and above can make much lower down payments on their home and benefit from favorable conventional loan interest rates.
5% down conventional loans
While you may not meet the requirements to put just 3% down, a popular alternative is a 5% down conventional loan.
This option is much more feasible for those worried about scraping together a 20% down payment but don’t qualify for the 3% down payment requirement.
However, you need to meet some specific eligibility criteria before you can take out this type of loan.
The 5% down conventional loan requirements are:
- It would be best if you had a credit score of 620 or higher
- You will need to pay private mortgage insurance
- Your loan must fall within loan limits set by Freddie Mac or Fannie Mae
- Your debt-to-income ratio (DTI) should be 50% or lower
Conventional loans are an accessible option for those looking to buy a property and don’t meet other government-backed loan programs. While a 20% down payment is ideal to avoid PMI and get lower interest rates, it’s not required.
You can still take out a conventional mortgage with as little as 3%, but it’s worth looking at the eligibility criteria set out by lenders before making a decision.
You may decide that higher interest rates and PMI are more than you’d like to pay and wait until you have a bigger down payment. This is something you should discuss with your loan officer to find the best solution for you.
If you need help choosing a loan product for your house purchase or you need down payment assistance, get in touch with our team today.