What conventional loan allows 3 percent down?

Three programmes: Conventional 97 (Fannie Mae Standard 97 percent LTV), HomeReady (Fannie, income at or below 80 percent AMI), and Home Possible (Freddie, income at or below 80 percent AMI). All require 620 minimum FICO and at least one first-time buyer on the loan for Conventional 97 in most cases.

Is 3 percent down conventional cheaper than 3.5 percent down FHA?

It depends on FICO and AMI eligibility. Under 700 FICO with no AMI programme eligibility, FHA at 3.5 percent is typically cheaper for short and mid holds. At 720+ FICO or with HomeReady/Home Possible eligibility, conventional at 3 percent beats FHA on 5-year-plus holds. The PMI vs MIP duration is the dominant factor, not the half-point down payment difference.

Does Conventional 97 require first-time buyer status?

Yes, at least one borrower on the loan must be a first-time home buyer for Conventional 97 in most cases (Fannie Mae Selling Guide B5-6-01). HomeReady and Home Possible do not require first-time-buyer status but do enforce 80 percent AMI income caps.

3% Down Conventional vs 3.5% Down FHA

Conventional programmes permit 3% down via Conventional 97, HomeReady, or Home Possible. FHA requires 3.5%. On a $300k home that is a $1,500 cash difference. The bigger question is what happens after closing: PMI duration vs MIP duration.

The 3 conventional 3% programmes

Programme	Min FICO	Income cap	FTHB required
Conventional 97 (Fannie)	620	None	Yes (at least one borrower)
HomeReady (Fannie)	620	80% AMI	No
Home Possible (Freddie)	660 (Adv) / 700 (AUS)	80% AMI	No

Cost stack on a $300k home, 680 FICO

Line	FHA 3.5% down	Conv 97 (3% down)	HomeReady (3% down)
Cash down	$10,500	$9,000	$9,000
Base loan	$289,500	$291,000	$291,000
UFMIP	$5,066	$0	$0
Annual MI	0.55%	0.85%	0.55% (HomeReady reduced)
MI duration	Life of loan	Cancels ~yr 11	Cancels ~yr 11
10-yr MI cost	~$15,800 + UFMIP	~$22,000	~$14,200
30-yr MI cost	~$47,520 + UFMIP	~$24,500	~$15,800

At 680 FICO, HomeReady is structurally cheapest if income qualifies. Conventional 97 ranks second on 30-year math. FHA wins only at short holds or if HomeReady is unavailable and FICO drops below 660.

The half-percent down payment difference

$1,500 in extra down payment on a $300k home is roughly 0.5% of the price. It matters for cash-strapped buyers but rarely changes the verdict between FHA and conventional. The PMI vs MIP cost difference compounds to $5,000 to $30,000 over a typical hold. Optimise for that, not the half-point cash difference.

Rate disclaimer

PMI factors vary by insurer. HomeReady PMI rates may differ between MGIC, Radian, Essent, and Enact. Consult a licensed loan officer.

Sources

Fannie Mae Selling Guide B5-6-01 (Conventional 97): selling-guide.fanniemae.com
HomeReady: fanniemae.com/homeready
Home Possible: freddiemac.com/home-possible
HUD ML 2024-04 (FHA MIP): HUD ML 2024-04