Buying a home with 3% down

The three main 3%-down conventional programs

Conventional 97 (Fannie Mae standard): 3% down for first-time buyers (defined as no ownership in past 3 years). No income limits. Standard PMI (private mortgage insurance — an extra monthly fee on conventional loans when you put down less than 20%; it protects the lender, not you, and can usually be removed later) pricing.

HomeReady (Fannie Mae): 3% down for buyers at or below 80% AMI. Reduced PMI premiums, non-borrower household income can be considered, boarder income accepted.

Home Possible (Freddie Mac): Same 3% down and AMI limits as HomeReady, with slightly different reduced-MI (mortgage insurance — a monthly fee added when your down payment is small; it protects the lender if the loan is not repaid) structure.

All three require 620+ FICO (FICO credit score — the 300–850 credit score most mortgage lenders actually pull, which is often different from the score in a free credit app) and completion of a homebuyer education course.

Why 3% down conventional often beats 3.5% down FHA

On a $350,000 purchase with 720 FICO:

FHA (Federal Housing Administration loan — a government-backed loan built for buyers with lower credit scores or smaller down payments) 3.5% down: - Down: $12,250 - Upfront MIP (mortgage insurance premium — the FHA version of mortgage insurance — an upfront fee plus a monthly fee added to your payment) financed: $5,906 - Annual MIP: 0.55% ($155/mo) - MIP for life of loan

Conventional 97 (3% down): - Down: $10,500 - No upfront MI - Annual PMI: 0.40%–0.75% (~$110–$205/mo) - PMI drops off automatically at 78% LTV (typically year 8–11)

On HomeReady/Home Possible at low-to-moderate income, PMI is even lower — often $70–$90/mo. For borrowers with 700+ FICO, 3% down conventional is almost always cheaper long-term than FHA.

Who should still consider FHA over 3% conventional

Choose FHA if: - Your FICO is 620–680 (FHA base rate similar; conventional pricing hits hard here) - Your DTI (debt-to-income ratio — how a lender measures your monthly bills as a percentage of your monthly income before taxes) is above 45% (FHA allows up to 56.9%) - You have recent credit event (short sale, foreclosure) — FHA is more forgiving

Choose Conv 97 / HomeReady / Home Possible if: - Your FICO is 700+ - Your DTI is under 45% - You want PMI to drop off automatically - You're at or below 80% AMI (HomeReady/Home Possible reduces MI significantly)