3% Down Payment Conventional Loans: A Smart Option for First-Time Home Buyers

Buying your first home doesn’t have to mean saving for years just to afford a big down payment. At Local Mortgage, we specialize in helping first-time homebuyers get into their dream homes with as little as 3% down on a conventional loan.

If you're ready to own a home but think you need a 20% down payment to qualify—think again. Our Memphis-based team is here to explain how low-down-payment conventional loans work and why they’re a great fit for first-time home buyers.

What Is a 3% Down Conventional Loan?

A 3% down conventional loan is a mortgage backed by Fannie Mae or Freddie Mac that allows qualified first-time home buyers to purchase a home with just 3% of the purchase price as a down payment.

They’re designed to make homeownership more accessible, especially for people who may have solid credit and income but limited savings.

Who Qualifies for a 3% Down Loan?

To be eligible, you typically need to meet a few basic criteria:

• Be a first-time home buyer (defined as someone who hasn’t owned a home in the past three years)

• Have a minimum credit score of 620

• Be purchasing a primary residence

  
  

In Shelby County and the greater Memphis area, many buyers easily meet these qualifications—especially if you’re purchasing your first home or transitioning from renting.

Potential Rate Discounts for First-Time Home Buyers

First-time home buyers with qualifying income at or below area median income levels may receive a discounted interest rate.

In 2025, the area median income level in Memphis and surrounding areas is $90,500.

How Much Is 3% Down on a Home in Memphis?

Here’s a quick example:

• Home Price: $250,000

• 3% Down Payment: $7,500

  
  

That’s significantly more affordable than a 10% or 20% down payment, which would require $25,000 to $50,000 upfront.

Benefits of a 3% Down Payment Loan

• Lower upfront cost

• Flexible credit requirements

• Competitive fixed interest rates

• Available for single-family homes, condos, and some multi-unit properties

• No prepayment penalties

  
  

Many borrowers ask if these loans are more expensive over time because of Private Mortgage Insurance (PMI). While PMI is required for down payments under 20%, with good credit scores, the PMI is affordable and shouldn’t prevent renters from buying their first home.  

Local Expertise Matters: Why Choose Local Mortgage in Memphis?

At Local Mortgage, we live and work right here in Memphis. That means we understand the local housing market, down payment programs, and what first-time buyers in Tennessee really need. We don’t just process paperwork—we walk you through the process from pre-approval to closing.

When you work with us, you’ll get:

• Personalized mortgage guidance

• Fast local approvals

• Access to first-time buyer incentives and grants

  
  

We believe homeownership should be within reach for every Memphis resident, no matter your budget.

How I Can Help You

When it comes time to purchase a home or refinance an existing loan, I want to help you! Hopefully articles like this give you good information and a better understanding of the mortgage world but let me use my experience and expertise to help you with your particular situation.

I tell my clients and referral partners that a mortgage transaction starts with a simple conversation. Let’s talk about your financial situation, budget, and goals so that I can help you determine the best solution for you. During a 10-minute informal conversation, we can get you on the right path as it relates to a home purchase or mortgage refinance.