Conventional 3% Down Payment Mortgage - First Time Home Buyers

HomeOne First Time Home Buyer Mortgage

Freddie Mac announces a NEW first time home buyer mortgage 3% down payment first time home buyer mortgage available June 29th, 2018.

In this article, I will break down the benefits and opportunities with this new 3% down payment loan available to first time home buyers.

  • First Time Home Buyer Mortgage
  • 3% Conventional vs 3.5% FHA Down Payment
  • HomeOne vs HomePossible
  • Qualifying for HomeOne
  • No Mortgage Insurance Option
  • Choosing the Best Mortgage
  • Working with a Mortgage Expert

First Time Home Buyer Mortgage

First time home buyers make up almost half of all new home purchases.  To qualify as a first time home buyer, you cannot have owned a primary residence in the past 36 months (3 years).

To qualify for the new HomeOne conventional mortgage offered by Freddie Mac, at least one borrower must be a first time home buyer.

3% Conventional vs 3.5% FHA Down Payment

Most first time buyers know about FHA mortgages that only require a 3.5% down payment, but few know about 3% down payment conventional loans.

There are benefits and opportunities with each of these mortgage options.  While a FHA mortgage is not a first time home buyer mortgage, it is very popular with first time buyers because of it’s low down payment and income flexibility.

3% Down Payment Conventional Mortgage Benefits

  • Mortgage insurance determined by credit score
  • Mortgage insurance can be removed without refinancing
  • Lower down payment than FHA

3.5% Down Payment FHA Mortgage Benefits

  • Mortgage insurance lower rate with lower credit scores
  • Debt to income ratios higher than conventional
  • Automated underwriting more flexible at lower credit scores

Both of these mortgage options are great options for a first time home buyer.  There are benefits, and disadvantages to both of these programs.

Most first time buyers do not chose one of these mortgages, usually the mortgage will chose you.  Based on your debt to income ratio and credit score, one of these mortgages will stand out as the best option.

HomeOne vs HomePossible

HomePossible is a first time home buyer mortgage offered by Freddie Mac that requires only a 3% down payment.  The biggest challenge with HomePossible is that it was specifically designed for low to moderate income home buyers.

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As a result of the income limits, the HomePossible program was limited by income limits based on the County that you’re buying in.  Some home buyers would be prevented from using this program because you make too much.

Currently, HomePossible income limits will go up to 140% of the area median income (AMI) for the County.  After June 29th, the HomePossible income limit will be reduced to 100% of the area median income (AMI).

The biggest differences between the HomeOne and HomePossible will be no income limits, standard mortgage insurance, and HomeOne does not have the loan level price adjustment limits that Home Possible offers.

Qualifying for HomeOne

Qualifying for the HomeOne first time home buyer mortgage is going to be very similar to qualifying for HomePossible, with exceptions.

Qualifying Guidelines

  • No income or geographic restrictions
  • At least one home buyer must be a first time buyer
  • Home buyer education must be completed by first time buyer
  • One unit single family residence ok
  • Condominium and townhome ok
  • Conforming conventional loan limit only
  • Hight balance conforming loan limits not allowed
  • No cash out refinance allowed
  • Must receive automated underwriting approval
  • Standard mortgage insurance rates apply

HomeOne is essentially a traditional conventional mortgage with conventional mortgage underwriting guidelines.

The biggest differences between the HomeOne and a traditional Freddie Mac conventional mortgage is 3% down payment, compared to a 5% down payment, and at least one borrower must be a first time buyer.

No Mortgage Insurance Option

Conventional mortgages use Private Mortgage Insurance (PMI) if you have less than a 20% down payment.

Private mortgage insurance is an insurance policy that you pay the premiums for, that protects your lender in the event of you defaulting on your mortgage.

Mortgage insurance is not currently tax deductible, while mortgage interest is.  Private mortgage insurance can be paid monthly, as a one time upfront fee, or it can be paid by the lender.

Mortgage insurance paid by the lender is called Lender Paid Mortgage Insurance.  This way of paying mortgage insurance is also called LPMI, or tax advantage mortgage insurance.

Essentially, tax advantage mortgage insurance rolls the mortgage insurance premium into the interest rate, resulting in a slightly higher interest rate than if you paid the mortgage insurance separately.

As the name indicates, rolling the mortgage insurance into the interest rate converts it into tax deductible mortgage interest.

A no mortgage insurance option should seriously be considered if you have excellent credit scores above 720 or higher.

Choosing the Best Mortgage

Freddie Mac is not the only conventional mortgage that offers a 3% down payment.  Fannie Mae also offers a 3% down payment mortgage named HomeReady.

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In many ways, Fannie Mae’s HomeReady 3% down payment mortgage is very similar to Freddie Mac’s HomePossible 3% down payment mortgage.

Prior to June 29th, 2018, HomePossible allowed higher income limits in high cost Counties, while HomeReady did not.

With the release of HomeOne, HomePossible’s income limits have been pared down to match the Fannie Mae HomeReady limit of 100% AMI.

As I mentioned earlier, FHA at 3.5% down payment is also a great option for first time home buyers.  In most cases, your specific qualifications will narrow down your mortgage options.

Choosing the best mortgage based on your qualifications requires that you work with a professional loan officer that has experience with all of the options that are available to you.

Working with a Mortgage Expert

All mortgage companies are NOT created equal.  Big box lenders that advertise on TV, radio and the internet, often only target a very narrow qualifying criteria.

These popular lenders spend millions of dollars on marketing and advertising, only to dump you into a call center and put you in the hands of an inexperienced customer service telemarketer.

Big box lenders try to convince unsuspecting consumers that it’s the lender that matters, and never mention the fact that your loan officer is the gateway to you getting the best mortgage.

As a first time home buyer, you should avoid these types of lenders at all costs if possible.  They do not offer lower rates or better service, but they do have more money to convince you that they do.

Your loan options as a first time home buyer are limited to the experience of the loan officer that you are working with.

If you are unfortunate enough to end up on the phone with an inexperienced loan officer, they may not even tell you about these incredible 3% down payment conventional loans.

I see this all the time.  Inexperienced loan officers will simply push you into a FHA mortgage with a higher effective interest rate, and permanent mortgage insurance.

Set Yourself Up for Success

The absolute first step to buying a home is to get your financing ducks in a row before you start looking for home.  This means working with a mortgage professional.

Once you find an expert loan officer that you trust, ask them for an introduction to a local real estate agent that they trust.  Even if the loan officer is not from the community that you’re buying in, they will still be able find an agent that rises to the level of professionalism you deserve.

Not sure where to find a professional loan officer that you can trust?  You’re in the right place!

If you have any questions or comments about this topic, feel free to leave a comment below, or you can shoot me an email at

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Now sure how to identify a professional loan officer?  Watch these expert interviews I’ve done with professional loan officer friends of mine.

I firmly believe that once you hear how a professional loan officer communicates, it will help you to avoid silly mistakes and errors that are common with inexperienced or uneducated loan officers.

About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

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Have Questions or Comments?

  • Richard Davis says:

    Well done! This is definitely informative and helpful for first time home buyers. Thanks for sharing this useful information.

  • Maxine says:

    My house was included in my chapter 7 ,house foreclosed 3 years after discharge. Which program is my best chance of becoming a home owner now.

    • Scott Schang says:

      Hi Maxine,

      There are a couple of options that might be available to you. Conventional loans, like the one’s i’ve covered in this article, will allow you to buy again in 4 years from the discharge of the Chapter 7, and we can ignore the foreclosure date.

      FHA financing will allow you to buy in 3 years from the foreclosure.

      Your chances of becoming a new home owner now are EXCELLENT!

      If you would like an introduction to a professional loan officer that has experience with these guidelines, shoot me an email to with the best contact info for you, and what State you’re buying in. I’m happy to make an introduction 🙂

      Hope this helps?

  • Susan Klaren says:

    I love this article. Like you, I have tons of expertise and often find consumers duped into thinking that just because a commercial told them something, it must be true.

    Thanks for always offering honest insight.

  • Tometris says:

    I really enjoy reading your articles. They keep me in the loop of things and I walk away with more information than I had before. Thank you!