3% Down Conventional vs FHA Loans: Complete Comparison

Buying a home is a major milestone, and choosing the right mortgage can significantly impact your financial future. Two popular options for first-time homebuyers and those with limited savings are 3% down conventional loans and FHA loans. Each has its own benefits, drawbacks, and eligibility criteria. This guide offers a comprehensive comparison to help you make the best choice for your situation.

What is a 3% Down Conventional Loan?

A 3% down conventional loan is a type of mortgage backed by Fannie Mae or Freddie Mac, allowing qualified buyers to put down as little as 3% of the home’s purchase price.

Key Features:

• Minimum down payment: 3%
  
• Credit score requirement: Typically 620 or higher
  
• Private Mortgage Insurance (PMI): Required if putting less than 20% down, but can be removed later
  
• Loan limit: Up to conforming loan limits (varies by region)
  

Best for:

• Borrowers with good credit
  
• Buyers who want to remove PMI later
  
• First-time homebuyers with stable income
  

What is an FHA Loan?

An FHA loan is insured by the Federal Housing Administration and is designed to help lower-income and first-time buyers enter the housing market.

Key Features:

• Minimum down payment: 3.5%
  
• Credit score requirement: 580+ (or 500–579 with 10% down)
  
• Mortgage Insurance Premium (MIP): Required for the life of the loan unless refinanced
  
• More lenient underwriting: Ideal for borrowers with limited credit history or higher debt-to-income (DTI) ratios
  

Best for:

• Buyers with lower credit scores
  
• Those with smaller savings or higher DTI
  
• Borrowers who don’t plan to refinance or move in the near future
  

Side-by-Side Comparison

Pros and Cons

3% Down Conventional Loan Pros

• Lower monthly insurance costs (in many cases)
  
• PMI can be canceled once you reach 20% equity
  
• Better for long-term savings
  

Cons

• Higher credit score required
  
• Stricter underwriting standards
  

FHA Loan Pros

• Easier approval with lower credit scores
  
• Smaller savings needed upfront
  
• Higher DTI accepted
  

Cons

• MIP stays for life unless you refinance
  
• Higher overall cost due to mortgage insurance
  

Which Loan Should You Choose?

Choose a 3% down conventional loan if:

• You have a strong credit profile (620+)
  
• You plan to stay in the home long enough to build equity and remove PMI
  
• You want more flexibility in home types and appraisal requirements
  

Choose an FHA loan if:

• Your credit score is below 620
  
• You have limited savings or higher DTI
  
• You’re a first-time buyer needing more flexible qualification terms
  

Need help choosing the right loan? Schedule a free consultation with our mortgage experts.

FAQs

Can I switch from an FHA to a conventional loan later?

Yes, you can refinance from an FHA loan to a conventional loan once your credit improves and you meet other lending criteria. This is a popular strategy for removing lifetime MIP.

Is 3% down enough to buy a house?

Yes, both Fannie Mae and Freddie Mac allow for 3% down payment options. However, additional closing costs and reserves may be required depending on your lender.

Can I get down payment assistance with either loan?

Yes, many state and local programs offer down payment assistance for both FHA and 3% down conventional loans. Ask your lender about qualifying programs in your area.

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