Buying a home with a low down payment: 6 loan options that work

Q: What is the lowest down payment you can put on a house?

Zero, if you qualify for a VA loan (eligible veterans, service members and some surviving spouses) or a USDA loan (moderate-income buyers in eligible rural and suburban areas). Otherwise, conventional programs like HomeReady, Home Possible and Conventional 97 allow 3% down, and FHA allows 3.5%. Down payment assistance can cover some or all of that.

Q: How can I avoid PMI with less than 20% down?

Options include a VA loan (no monthly mortgage insurance), a piggyback 80/10/10 loan structure that combines a first mortgage with a second loan, or lender-paid PMI traded for a slightly higher rate. On standard conventional loans, PMI cancels automatically at 78% loan-to-value, or you can request removal at 80% as your equity grows.

Q: What credit score do you need for a low down payment mortgage?

FHA allows 580 for 3.5% down (500-579 requires 10% down). Conventional 3% down programs generally require 620 or higher, with better pricing above 700. VA has no official minimum, though many lenders look for around 580-620. Stronger credit lowers both your rate and your mortgage insurance cost.

Written by Samantha SheltonNMLS 1647301Updated September 2026

Young family in the living room of a home they bought with a low down payment, holding keys beside moving boxes

You don’t need 20% down to buy a home. HomeReady, Home Possible and Conventional 97 allow 3% down, FHA requires 3.5% with a credit score of 580 or higher, and VA and USDA loans let eligible buyers purchase with nothing down.

The tradeoff is mortgage insurance or a funding fee. That monthly cost lasts until you build equity, and on an FHA loan at the 3.5% minimum, it lasts the full loan term.

Down payment assistance shrinks that cash further; Michigan’s MSHDA offers up to $10,000 statewide. Learn how buying a home with a low down payment works, what each program requires, and what mortgage insurance really costs per month, or start with our Home Buying guide.

Key takeaways:

Zero down is real for some buyers: VA loans require no down payment when the sales price doesn’t exceed the appraised value, and USDA loans finance up to 100% of appraised value for moderate-income buyers in eligible areas.
Everyone else starts at 3% – 3.5%: HomeReady, Home Possible, Conventional 97 and HomeOne all allow 3% down, and FHA allows 3.5% down with a credit score of 580 or higher.
Mortgage insurance is the price of a small down payment: Conventional PMI must be cancelled automatically at 78% loan-to-value, while FHA’s 0.55% annual premium runs the full loan term at the 3.5% minimum.

What is a low down payment mortgage?

A low down payment mortgage is any home loan that lets you buy with less than the traditional 20% down in practice, 0% to 10%. The 20% figure was never a legal requirement. It’s the threshold at which conventional lenders stop requiring private mortgage insurance, and it hardened into folklore.

The math is why it matters. On a $250,000 home, 20% down is $50,000. At 3.5% it’s $8,750, at 3% it’s $7,500, at 0% it’s nothing. The real question isn’t whether low-down-payment mortgages exist. They do, and they’re mainstream. It’s what the smaller down payment costs each month, how long that cost lasts, and whether waiting is cheaper. Our guide to how to save for a down payment covers the other side of that decision.

Low down payment loan options compared

Six financing structures get you into a home with less than 20% down, and they differ mostly on one axis: who is eligible. Credit-flexible programs cost more in mortgage insurance, income-capped programs cost less, and the two zero-down programs are gated by service history or geography.

Program	Minimum down	Credit score	Mortgage insurance	Best for
FHA	3.5% (96.5% max LTV)	580 for 3.5% down; 500 – 579 capped at 90% LTV	1.75% upfront MIP plus 0.55% annual, for the loan term	Buyers with lower or thinner credit
VA	0%	VA sets no minimum; the lender sets its own	None, no PMI or MIP; funding fee 2.15% on first use	Eligible veterans, service members and surviving spouses
USDA	0%	USDA sets no minimum; the lender sets its own	Upfront guarantee fee plus an annual fee	Moderate-income buyers in eligible rural areas
HomeReady / Home Possible	3% (97% max LTV)	Set by the lender and the automated underwriting system	PMI, with reduced coverage above 90% LTV; cancellable	Buyers at or under 80% of area median income
Conventional 97 / HomeOne	3% (97% max LTV)	Set by the lender and the automated underwriting system	Standard PMI coverage above 95% LTV; cancellable	First-time buyers over the 80% income cap. At least 1 borrower must be a first-time buyer
Piggyback 80/10/10	10% cash plus a 10% second loan	Typically the strictest of the six; set by the lender	None, the first mortgage stays at 80% LTV	Buyers with 10% saved who want to avoid PMI entirely

Read that as a sequence, not a menu: check VA, then USDA, then the income-capped 3% programs, then FHA, cheapest to most expensive.

How does an FHA loan work with 3.5% down?

FHA insures purchase loans up to 96.5% of the adjusted value, a minimum required investment of 3.5%. The credit rule is the reason FHA exists: a minimum decision credit score at or above 580 is eligible for that maximum financing, while a score between 500 and 579 caps the loan at 90% loan-to-value, meaning 10% down.¹

FHA charges two mortgage insurance premiums, both set by HUD rather than your lender. Upfront MIP is 1.75% of the base loan amount, usually financed in. Annual MIP on a 30-year loan is 0.55% when your LTV is above 95%, and at that level it runs for the entire mortgage term, not until you hit 20% equity.

That duration rule is the detail most buyers miss, and it has a lever attached: put 10% down instead of 3.5% and the annual premium drops to 0.50% and expires after 11 years. FHA also accepts gift funds toward the down payment from a family member, an employer or labor union, a documented close friend, a charity, or a government homeownership assistance program. HUD’s FHA loan overview covers the broader terms.

Who qualifies for a 0% down VA loan?

VA-backed purchase loans require no down payment as long as the sales price isn’t higher than the home’s appraised value, and they carry no private mortgage insurance and no monthly mortgage insurance premium.² That combination makes the VA loan the least expensive low down payment option in the country for the buyers who can use it.

Eligibility runs through a Certificate of Eligibility based on your service history, plus two conditions: you meet the lender’s own standards for credit and income, and you live in the home. The VA publishes no minimum credit score. Lenders set that themselves, which is why the same veteran can be declined at one lender and approved at another.

The cost that replaces mortgage insurance is the VA funding fee. With less than 5% down it’s 2.15% of the loan amount for first-time use of the benefit and 3.3% for subsequent use; 5% down drops it to 1.5% and 10% down to 1.25%. You owe no funding fee at all if you receive VA compensation for a service-connected disability, and other exemptions cover surviving spouses receiving Dependency and Indemnity Compensation and Purple Heart recipients on active duty. The VA home loan programs materials carry the full list.

What are the 3% down conventional programs?

Four conventional programs finance 97% of the purchase price, meaning 3% down. They split into two pairs: income-capped programs built for lower earners, and standard programs with no income limit at all.

HomeReady and Home Possible

Both cap qualifying income at 80% of the area median income for the property’s location. Fannie Mae’s HomeReady allows up to 97% LTV on a one-unit principal residence underwritten through Desktop Underwriter, and requires homeownership education when every occupying borrower is a first-time buyer. Freddie Mac’s Home Possible program allows the same 3% down and reduces the required mortgage insurance coverage above 90% LTV, real monthly savings. It also accepts gifts, grants and cash on hand toward the down payment and closing costs.

Conventional 97 and HomeOne

These are the 3% down options for buyers who earn too much for HomeReady or Home Possible, but both carry a condition the income-capped programs don’t: on a purchase, at least one borrower has to be a first-time home buyer, meaning no ownership interest in a residential property during the previous 3 years. Freddie Mac’s HomeOne allows 97% LTV on a one-unit primary residence with no income or geographic limits, on fixed-rate purchases only, with standard 35% mortgage insurance coverage above 95% LTV, and it requires homeownership education when every borrower is a first-time buyer. Fannie Mae’s standard 97% option is the closest equivalent and carries the same first-time-buyer condition, see what a Conventional 97 loan is before assuming you qualify.

Across Align Lending’s lender network, minimum credit score overlays on 3% down conventional loans commonly sit in the 620 – 660 range, varying by lender rather than by program. That spread is the best argument there is for shopping a low down payment file instead of applying at one bank.

Who qualifies for a 0% down USDA loan?

USDA’s guaranteed loan lets the loan amount reach the full appraised market value of the property, plus the upfront guarantee fee financed on top, so no down payment is required. Three conditions gate it.

Income: Your adjusted household income can’t exceed the applicable moderate income limit, which USDA ties to benchmarks including 115% of the U.S. median family income.
Occupancy: You must agree to and be able to occupy the home as your principal residence.
Credit access: You must be unable to obtain traditional conventional mortgage credit for the loan, as the agency defines it.

USDA replaces mortgage insurance with two fees, both capped by regulation, the upfront guarantee fee at 3.5% of the principal obligation and the annual fee at 0.5% of the average scheduled unpaid balance, with the agency setting both well below those ceilings. One warning worth stating plainly: “rural” is a program definition, not a description of cornfields. Plenty of outer-ring suburbs qualify.

Other ways to lower your upfront cost

Your loan program sets the minimum. These four moves reduce the cash you personally have to produce to meet it.

Down payment assistance: State housing agencies offer second loans and grants covering part or all of the required down payment. Most are deferred or forgivable loans, and most require a homebuyer education class.
Gift funds: On a one-unit principal residence, Fannie Mae requires no minimum contribution from the borrower’s own funds. The entire down payment can be a gift from a relative or someone with a documented familial-like relationship, as long as the donor isn’t the builder, agent or another interested party. Our guide to financing a home purchase with gift funds covers the gift letter and sourcing rules.
Good Neighbor Next Door: HUD sells single-unit homes in designated revitalization areas at a 50% discount from list price to full-time law enforcement officers, pre-K through 12 teachers, and firefighters or EMTs. You sign a second mortgage to HUD for the discount; it shrinks 1/36th each month you live there and hits zero at the end of the 36-month occupancy term.
Piggyback 80/10/10: A first mortgage at 80% of the price, a second loan for 10%, and 10% down. The first mortgage never crosses 80% LTV, so there’s no PMI, but the second lien typically carries a higher rate, and you qualify for two loans instead of one.

What Michigan buyers should know

Michigan’s housing authority runs one of the more usable down payment assistance programs in the country, and it pairs with conventional, FHA and USDA financing rather than replacing them.

MI Home Loan: Open to first-time buyers statewide, no home ownership in the previous three years, and to repeat buyers in targeted areas. It requires a 640 minimum credit score and carries a statewide sales price limit of $566,355 as of June 1, 2026.
MI 10K DPA Loan: Up to $10,000 toward down payment, closing costs and prepaid expenses, statewide, as an interest-free loan with no monthly payments. Repayment is deferred until you pay off the first mortgage, sell, refinance, or stop occupying the home. It must be paired with an MI Home Loan, and a homebuyer education certificate is required.
Income limits are county-specific: MSHDA publishes 2 income limits per county on the same June 1, 2026 table that sets the $566,355 sales price limit, one for one- and two-person households and a higher one for three or more, and the limits for federally targeted areas run above the non-targeted limits in the same county. Check your county’s line before you assume your income disqualifies you; ask us and we’ll pull it.
First-Generation DPA is closed: MSHDA’s First-Generation pilot, which offered up to $25,000, has exhausted its funding. Applications are closed and there’s no waitlist, so don’t build a plan around it.

What does a low down payment really cost you?

Take a $250,000 FHA purchase with 3.5% down. Your base loan is $241,250, the 1.75% upfront MIP adds about $4,222 that’s usually financed in, and the 0.55% annual MIP runs roughly $111 a month in year one for the entire mortgage term at that LTV.³ The first ten years alone run roughly $12,000 in mortgage insurance.

Conventional PMI differs in two ways that matter. First, Fannie Mae and Freddie Mac don’t set the price. Private mortgage insurers do, based on your credit score, down payment and coverage level, so it has to be quoted rather than looked up. Second, it ends. Federal law requires your servicer to automatically terminate PMI when your principal balance is scheduled to reach 78% of the original value, and you can request cancellation at 80%.

Weigh that against the cost of waiting. Saving toward 20% on a $250,000 home takes roughly $42,500 more than 3% down does, plus closing costs on top, work through how to budget for closing costs so the second number doesn’t surprise you. If closing that gap takes six years, six years of rent and price movement are the real cost of waiting. If it takes eighteen months, waiting may genuinely win. Our preparing to buy hub covers the rest of the readiness checklist.

How Align helps you get ready

There is no such thing as calling too early. Samantha would rather see your numbers months before you shop than the week you find a house, because that is when there is still time to fix what matters.

When you are ready, one application goes to multiple wholesale lenders. A 2024 Polygon Research analysis of federal mortgage data found broker borrowers paid about $10,662 less over the life of a $400,000 loan than borrowers at nonbank retail lenders.

Take a mortgage readiness review

Sources: Polygon Research, Loan Costs Channel Study 2024 (2023 federal HMDA data, 30-year fixed purchase loans; commissioned by United Wholesale Mortgage and Willow Canyon Advisors).

FAQ: Low down payment mortgages

Here are answers to common questions about low down payment mortgages.

What is the lowest down payment you can put on a house?

Zero, if you qualify for a VA loan as an eligible veteran, service member or surviving spouse, or for a USDA loan as a moderate-income buyer in an eligible rural or suburban area. Otherwise, conventional programs like HomeReady, Home Possible and Conventional 97 allow 3% down, and FHA allows 3.5%. Down payment assistance can cover some or all of that remaining requirement.

Is it bad to buy a house with a low down payment?

Not inherently. A smaller down payment means mortgage insurance and higher monthly costs, but it also means buying years sooner and building equity instead of paying rent. The real risk is starting with little equity cushion if values dip. If saving 20% would take many years, a low down payment loan often comes out ahead, and income-eligible buyers can soften the tradeoff with a HomeReady mortgage.

How can I avoid PMI with less than 20% down?

Options include a VA loan, which carries no monthly mortgage insurance at all; a piggyback 80/10/10 loan that pairs a first mortgage capped at 80% LTV with a second loan; or lender-paid PMI traded for a slightly higher rate. On standard conventional loans, PMI terminates automatically at 78% loan-to-value, and you can request removal at 80% as your equity grows.

What credit score do you need for a low down payment mortgage?

FHA allows 3.5% down at a minimum decision credit score of 580; a score of 500 to 579 caps you at 90% LTV, meaning 10% down. VA and USDA publish no minimum score, leaving it to the lender. On 3% down conventional loans, lenders in Align’s network commonly look for 620 or higher, see low-down-payment mortgages for how those overlays work.

The bottom line on low down payment home buying

You do not need 20% down. VA and USDA loans let eligible buyers purchase with 0% down, HomeReady, Home Possible, Conventional 97 and HomeOne allow 3%, and FHA allows 3.5% with a credit score of 580 or higher. The tradeoff is mortgage insurance or a funding fee: conventional PMI terminates automatically at 78% loan-to-value, while FHA’s 0.55% annual premium runs the full loan term at the 3.5% minimum. Down payment assistance closes the gap, Michigan’s MI 10K DPA Loan covers up to $10,000, interest-free.

If you’re ready to buy without saving 20% first, talk to Align Lending, we’ll shop your scenario across our lender network and show you every low down payment option you qualify for side by side. Call 248-506-5727 or start online today.

Footnotes:

1. Align Lending is not acting on behalf of or at the direction of FHA or HUD. FHA credit score, loan-to-value, and mortgage insurance premium requirements are set by HUD and are subject to change. Return to text.

2. Align Lending works with VA-approved lenders and is not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency. VA eligibility, funding fee, and appraisal requirements are set by the Department of Veterans Affairs and are subject to change. Return to text.

3. Example figures are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your loan amount, down payment, mortgage insurance cost, and cash to close depend on your application, the property, and market conditions. Return to text.

Figures current as of August 2026; verify with the linked source before relying on them. Sources: FHA 96.5% maximum purchase LTV, 3.5% minimum required investment, credit score tiers (580+ eligible for maximum financing; 500 – 579 limited to 90% LTV) and acceptable gift donors, HUD Handbook 4000.1. FHA upfront MIP of 1.75% and annual MIP of 0.55% above 95% LTV (0.50% for 11 years at 90% LTV or below), HUD Mortgagee Letter 2023-05. VA no-down-payment and no-PMI terms, Certificate of Eligibility and occupancy requirements, and funding fee rates and exemptions, U.S. Department of Veterans Affairs. USDA maximum loan amount equal to appraised market value plus the financed upfront guarantee fee, 7 CFR § 3555.103; moderate income definition, § 3555.10; income, occupancy and credit-access eligibility, § 3555.151; fee caps of 3.5% upfront and 0.5% annual, § 3555.107. HomeReady 97% LTV, 80% AMI limit, one-unit principal residence and homeownership education requirements, Fannie Mae Selling Guide B5-6-01 and B5-6-02; gift funds and minimum borrower contribution, B3-4.3-04. Fannie Mae standard 97% LTV purchase requirement that at least one borrower be a first-time home buyer, Fannie Mae 97% LTV options. Home Possible 3% down, 97% maximum LTV, 80% AMI limit, reduced MI coverage above 90% LTV and eligible sources of funds; HomeOne 97% maximum LTV, no income or geographic limits, fixed-rate one-unit primary residence, 35% MI coverage above 95% LTV, the requirement that at least one borrower on a purchase be a first-time home buyer, and homeownership education when all borrowers are first-time buyers, Freddie Mac Single-Family Seller/Servicer Guide Section 4605.1. PMI cancellation at 80% and automatic termination at 78% of original value, Consumer Financial Protection Bureau. Good Neighbor Next Door 50% discount, 24 CFR § 291.510; eligible occupations, §§ 291.515 – 291.530; 36-month occupancy term, § 291.540; second mortgage reduced 1/36th monthly, § 291.550. MI Home Loan 640 minimum credit score and $566,355 statewide sales price limit effective June 1, 2026; MI 10K DPA terms; the county-by-county, household-size income limit structure; and closure of the $25,000 First-Generation DPA program for lack of funding, Michigan State Housing Development Authority. Credit score overlay ranges, Align Lending broker network data.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Loan program requirements, down payment assistance terms, mortgage insurance premiums, and agency fees change; confirm current terms with a licensed loan originator before you rely on them. Consult a qualified professional about your situation. Program terms and figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.