The 20% down payment requirement is a myth that costs first-time buyers years. In 2026, six programs let you buy with 0%–3.5% down — each with different eligibility rules and total-cost profiles.
Quick comparison
| Program | Min down | Min FICO | 2026 max loan (single-unit) | PMI / mortgage insurance rule | Key restriction |
|---|---|---|---|---|---|
| FHA 203(b) | 3.5% (580+ FICO) | 500 | $524,225 baseline | MIP for life of loan if <10% down | Primary residence only |
| VA Loan | 0% | No VA minimum (lenders: 580–620) | No limit (full entitlement) | No PMI — one-time VA funding fee | Service eligibility required |
| USDA Rural Dev. | 0% | ~640 (lender requirement) | Area-based | 0.35%/yr annual fee; cancellable at 80% LTV | Rural/suburban area + income ≤115% AMI |
| Conventional 97 | 3% | 620 | $806,500 | Cancellable at 80% LTV | At least one first-time buyer |
| Fannie Mae HomeReady | 3% | 620 | $806,500 | Reduced PMI; cancellable at 80% LTV | Income ≤80% AMI |
| Freddie Mac Home Possible | 3% | 660 | $806,500 | Reduced PMI; cancellable at 80% LTV | Income ≤80% AMI |
Loan limits are 2026 FHFA baseline conforming limits; high-cost areas are higher. Verify local limits before shopping.
The low-down-payment map
| Program | Down Payment | Income Cap | Who Qualifies |
|---|---|---|---|
| VA Loan | 0% | None | Veterans, active-duty, surviving spouses |
| USDA Rural Dev. | 0% | ≤115% AMI | Rural/suburban areas, income-qualified |
| FHA 203(b) | 3.5% (580+ FICO) | None | Any primary-residence buyer |
| Conventional 97 | 3% | None | At least one first-time buyer |
| HomeReady | 3% | ≤80% AMI | LMI buyers, repeat OK |
| Home Possible | 3% | ≤80% AMI | LMI buyers, broadest property types |
Understanding mortgage insurance by program
Mortgage insurance is the real cost of a low down payment. Here's how it varies:
FHA MIP (mortgage insurance premium):
- Upfront: 1.75% of loan amount (typically financed into the loan)
- Annual: 0.55%–0.75% of loan balance
- Duration: Full loan term if down payment < 10% — it does NOT cancel at 80% LTV like conventional PMI
- On a $400K loan: approximately $2,200–$3,000/year in annual MIP, running indefinitely
Conventional PMI (Conventional 97, HomeReady, Home Possible):
- Annual: 0.20%–1.50% depending on credit score and LTV
- Cancellable: by law at 80% LTV (Homeowners Protection Act); lender must notify you when you reach 22% equity
- At 760 FICO + 5% down: PMI might be 0.25% annually — much cheaper than FHA MIP
VA funding fee:
- One-time charge: 1.25%–3.30% of loan amount (varies by use and down payment; 0% with 10%+ down for many borrowers)
- No annual PMI equivalent — $0 ongoing mortgage insurance
USDA guarantee fee:
- Annual: 0.35% of loan balance — lowest annual MI cost of any federally backed program
- Cancellable at 80% LTV
The refi-out-of-FHA-PMI strategy: If you took FHA to get in the door and your home has appreciated to 80%+ LTV, a conventional refinance eliminates MIP entirely. Many buyers use FHA to close, then refi to conventional in 2–3 years once equity builds via appreciation + principal paydown. Run the numbers: closing costs vs. MIP savings payback period.
State and local down payment assistance (DPA)
Every state has at least one Housing Finance Agency (HFA) offering down payment assistance for first-time buyers. Most DPA programs:
- Provide $5,000–$25,000 in forgivable grants or low-interest second mortgages
- Layer on top of FHA, conventional, VA, or USDA loans
- Target buyers at 80%–120% AMI (varies by program)
- Require homeownership counseling (often free through HUD-approved agencies)
DPA can cover your entire 3%–3.5% down payment on many programs, bringing your out-of-pocket down to closing costs only. To find programs: HUD's official homebuyer resource page at hud.gov/topics/buying_a_home connects you to HUD-approved housing counseling agencies who map available DPA programs to your specific county and income.
The total-cost framework
Picking the lowest down payment program isn't always the lowest total cost. Run this comparison before choosing:
- Monthly payment (principal + interest + PMI/MIP + taxes + insurance)
- Total mortgage insurance paid through anticipated hold period (10 years typical)
- Rate differential between programs (VA typically 0.25%–0.50% below conventional; FHA typically 0.10%–0.30% below conventional for sub-680 FICO)
- DPA stack — does available DPA change which program makes sense?
A 740 FICO buyer with available DPA often ends up better on Conventional 97 + DPA than on FHA, even with slightly higher rates — because cancellable PMI beats permanent MIP over a 10-year hold.
Important notes
ClearValue Lending is not a mortgage lender, broker, or government agency. This guide presents publicly available information about federal mortgage programs. Loan terms, eligibility requirements, and program details are set by HUD, VA, USDA, Fannie Mae, Freddie Mac, and participating lenders — verify all current requirements with the originating lender or at the program's official government website.
First-time homebuyers who are also small business owners face an additional underwriting wrinkle — self-employment income is evaluated differently than W-2 income, and two years of tax returns are typically required. Our sole proprietorship tax reality resource explains how self-employment income documentation affects financing approvals across both mortgage and business loan applications. For tracking how your business credit profile supports both a mortgage and future business financing, see our business credit scores guide.