Conventional loans are the most popular type of loan to purchase a home. If you have a good credit score and a solid down payment, a conventional loan may work for you. But how much money will you need to meet the minimum down payment for conventional loan programs?

Minimum Down Payment for Conventional Loan Programs

Residence UsageFixed-Rate Mortgage (FRM)Adjustable-Rate Mortgage (ARM)
1 Unit Primary3% Down Payment10% Down Payment
2 Units Primary15% Down Payment25% Down Payment
3 Units Primary25% Down Payment35% Down Payment
4 Units Primary25% Down Payment35% Down Payment
1 Unit Second Home10% Down Payment20% Down Payment
1 Unit Investment15% Down Payment25% Down Payment
2 Units Investment25% Down Payment35% Down Payment
3 Units Investment25% Down Payment35% Down Payment
4 Units Investment25% Down Payment35% Down Payment

What are Conventional Loans?

Conventional Loan Down Payment RequirementsConventional mortgages are home loans not insured or backed up by government agencies. They are offered by private lenders and are not backed or offered by government entities, although they usually follow government loan requirements. ‘Conforming Loans’ are those that conform to regulations set forth by Fannie Mae or Freddie Mac.

Private mortgage insurance (PMI), is required for conventional loan programs with less than a 20% down payment. PMI adds an extra premium to your monthly payments, which buys protection for the lender in the event that you default.

While 20% is often the most ‘favorable’ down payment because it avoids PMI, it’s not required. Depending on the lender and loan, you can put down more or less money, down to 3%. This means that your monthly payments will be lower without the private mortgage insurance.

Additional Conventional Loan Requirements

Conventional conforming loans adhere to the guidelines put forth by Fannie Mae and Freddie Mac. These Government Sponsored Enterprise (GSE) giants play an important role in the home finance market.

  • Applicant credit score: Conventional mortgages have various credit requirements depending on the lender and the loan program. Your interest rate may increase if you have a lower credit score. The lowest interest rates are reserved for those with the best credit scores, and those borrowers pay less interest over the life of their mortgage. There is a minimum 620 credit rating for all conventional conforming loans.
  • Applicant Debt-to-Income (DTI): Another factor lenders consider is your debt-to-income ratio, which is your total monthly debts divided by your gross monthly income. Conventional loans have a maximum DTI of 43%, however your changes of approval increase with a lower ratio.
  • The Maximum Loan Amount: The maximum conventional conforming loan limit for single-family residences is $647,200 for most counties in 2021, or $970,800 for regions with a higher costs.

Other Mortgage Options

Conventional loans may work well for some people but not for all. Before applying for a conventional loan, make sure you have met the minimum requirements. Ask your mortgage broker or realtor if you are eligible. If you aren’t eligible, they may recommend other options.

  • FHA Loans: The Federal Housing Administration insures mortgages to applicants with lower credit scores, and feature minimum down payment requirements as low at 3.5%.
  • USDA Loans: The U.S. Department of Agriculture insures and supports rural development loan programs for applicants with low or moderate incomes. A USDA home loan can be used to buy a home with zero down payment.
  • VA Loans: The Department of Veterans Affairs insures VA loans that are available to qualifying active military personnel, qualifying veterans, as well as their families. If you’re eligible, there’s no down payment and you can reuse it multiple times.
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