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An eligible 3% down conventional loan can require less money for the down payment than an FHA loan’s 3.5% minimum, but that does not guarantee a lower cash-to-close figure. FHA’s 1.75% upfront mortgage insurance premium can be financed, while lender fees, settlement charges, prepaid items, deposits and credits can make either offer cheaper for a particular transaction.
The reliable answer comes from comparing Loan Estimates for the same home, price, loan term and assumptions. Look at cash to close and the long-term mortgage-insurance cost together rather than choosing on the minimum down-payment percentage alone.
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At a glance
| Name | Best for | Key spec | Checked |
|---|---|---|---|
| FHA-insured mortgage | Buyers who meet FHA requirements and need a flexible low-down-payment option | At least 3.5% minimum required investment; 1.75% upfront MIP generally applies and may be financed | November 2026 |
| HomeReady conventional | Eligible borrowers who can qualify for a 3% down conventional program | Up to 97% LTV (3% down) for an eligible one-unit principal residence; a $2,500 very-low-income borrower credit may be available subject to rules | November 2026 |
Prices checked November 2026.
“Conventional” covers many programs. The 3% figure in this table comes specifically from Fannie Mae’s HomeReady program, not from every conventional loan or every borrower.
Which mortgage usually needs less money at the start?
If you compare only the minimum down payment, an eligible HomeReady borrower can start at 3% down, versus FHA’s 3.5% minimum required investment. On a given purchase price, that makes the conventional down payment smaller by 0.5 percentage points.
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That is only the first line of the settlement calculation. FHA borrowers generally have an upfront mortgage insurance premium (UFMIP), and both loan types can have lender charges, title and settlement costs, prepaid interest, taxes, insurance and initial escrow deposits. Seller or lender credits and an earnest-money deposit can reduce the amount still due. Consequently, an FHA Loan Estimate can show less cash to close than a conventional estimate in one transaction, while the conventional estimate wins in another.
What does “cash to close” include?
Cash to close is the amount you must bring to settlement after the lender accounts for the down payment, closing charges, prepaid items and credits already applied. The CFPB’s Loan Estimate explainer shows the calculation as the down payment and closing costs, reduced by amounts such as a deposit already paid and seller credits.
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1Clear out junk files and repair common Windows errors2Fix the driver behind crashes, sound loss and screen glitches3Repair Windows errors before they cause bigger problemsAsk the lender to identify each component rather than treating the down payment as the whole bill:
- Down payment: the portion of the purchase price not financed. FHA’s minimum is at least 3.5% of the applicable adjusted value; an eligible HomeReady loan can finance up to 97% of value, or 3% down.
- Lender charges: origination, underwriting, processing and other charges listed on the estimate.
- Settlement and third-party charges: items such as title, recording, appraisal and other services selected or required for the transaction.
- Prepaid items and initial escrow: prepaid interest, property taxes, homeowners insurance and the reserves required to establish an escrow account.
- Mortgage insurance: FHA’s upfront premium and continuing annual MIP, plus any mortgage-insurance charge on the conventional estimate.
- Credits and deposits: earnest money or other deposits already paid, seller credits and lender credits that are actually permitted to cover the listed costs.
Two lenders can quote the same interest rate and down payment yet produce different cash-to-close figures because their fees, credits, escrow assumptions and treatment of the FHA premium differ.
How much cash does FHA require?
HUD describes FHA’s Minimum Required Investment (MRI) as at least 3.5% of the adjusted value for the applicable maximum mortgage. The MRI is not the borrower’s entire settlement obligation. HUD’s handbook explains: “For a purchase transaction, the amount of cash needed by the Borrower to close an FHA-insured Mortgage is the difference between the total cost to acquire the Property and the total mortgage amount.” Read the FHA Single Family Housing Policy Handbook for the formal calculation.
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In practical terms, an FHA borrower must cover the MRI plus borrower-paid transaction costs and any prepaid or escrow amounts that are not offset by credits. The 3.5% figure is measured against the FHA calculation of adjusted value, so the lender must determine the exact amount for the property and transaction.
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HUD’s published FHA mortgage-insurance structure lists a 1.75% upfront premium on the base loan amount for most applicable forward purchase and refinance cases, subject to exceptions and current program terms. A borrower may pay that premium at closing or finance it into the FHA loan under the 203(b) program. Financing it can lower cash due on settlement, but it increases the principal balance and the interest paid over time.
Most covered FHA forward loans also have annual MIP collected in monthly installments. Therefore, a comparison that favors FHA because its UFMIP was financed may still have a higher monthly payment or higher total financing cost than the conventional alternative. Confirm the current premium schedule and duration with the lender because FHA rules and loan characteristics can change.
How can a conventional loan require only 3% down?
HomeReady is one conventional option. Fannie Mae’s HomeReady Mortgage Lender Fact Sheet describes up to 97% loan-to-value financing for an eligible one-unit principal-residence purchase, corresponding to a 3% down payment. Income, property, credit and underwriting rules apply; the program maximum is not a promise that every applicant will qualify.
The same fact sheet says a $2,500 credit may be available to a very-low-income purchase borrower and can be used for a down payment or closing costs, including mortgage-insurance premiums, when the program’s criteria are met. Ask the lender to document eligibility and show the credit on the Loan Estimate. Do not assume that a different conventional product, an investment property or a borrower outside the program’s income rules receives the same terms.
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A 3% down conventional loan can still require more cash than an FHA loan if its lender fees, prepaid items or escrow requirements are higher, or if the FHA borrower receives a larger permitted credit. Conversely, conventional mortgage insurance and pricing can make its monthly or total cost higher or lower depending on the borrower’s profile.
How do seller credits, lender credits and deposits affect the result?
Credits reduce specific charges; they do not create unrestricted cash. A seller credit may cover eligible closing costs or prepaid items under the applicable loan and contract rules, while a lender credit generally comes in exchange for a higher interest rate or other pricing. The Loan Estimate should show which charges each credit offsets.
An earnest-money deposit paid with the offer is normally reflected as an amount already paid and therefore reduces the remaining funds due at closing. Verify that the deposit is listed correctly and that any additional deposits, gifts or assistance are documented in the way the lender requires.
When comparing FHA and conventional offers, give both lenders identical information about the contract, deposits and negotiated credits. Otherwise, one “cash to close” number may simply reflect different assumptions.
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What happens if the appraisal is below the purchase price?
FHA’s MRI is tied to the FHA adjusted value, and the lender’s maximum mortgage is based on the property and program calculation. If the agreed purchase price exceeds the value used for underwriting, the buyer may need to provide additional cash to cover the difference or renegotiate the contract. The lender must calculate the case; do not rely on a percentage applied blindly to the contract price.
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The same practical warning applies to a conventional loan: the lender’s financing percentage is applied to the value accepted for underwriting, and a short appraisal can change the amount you must bring. Request revised estimates if the appraisal, price, credits or loan amount changes.
How should I compare FHA and conventional Loan Estimates?
Request official Loan Estimates from lenders using matching assumptions. The CFPB recommends comparing estimates from different lenders; a useful comparison is line-by-line, not just a glance at the down-payment percentage.
- Use one set of transaction facts. Give each lender the same purchase price, property address and type, occupancy, desired loan term, down-payment amount, closing date and deposit already paid.
- Ask for the same rate-lock status. An unlocked quote can change, and a locked quote may have different pricing or expiration conditions. Record the date and lock period shown.
- Read the “Cash to Close” calculation. Confirm that the down payment, lender and settlement charges, prepaid interest, taxes, insurance and initial escrow amounts are included.
- Check credits and adjustments. Make sure seller credits, lender credits and deposits appear in the same places and are assigned to eligible costs.
- Identify FHA UFMIP treatment. On the FHA estimate, see whether the 1.75% upfront premium is paid in cash or added to the base loan. Compare the resulting loan amount and monthly payment.
- Compare mortgage insurance beyond closing. Review FHA annual MIP and the conventional mortgage-insurance amount, assumptions and projected payment. A smaller closing check can carry a larger recurring obligation.
- Ask what can change. Have the lender explain rate, appraisal, insurance, tax and escrow assumptions, and request a revised estimate when a material transaction detail changes.
Keep the estimates side by side and write down the total cash required, the financed balance, the monthly payment and the charges that are fixed versus estimates. This prevents a credit or financed premium from being mistaken for a free reduction in cost.
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When is FHA more likely to preserve cash?
FHA may preserve more money at settlement when its financing treatment and available credits outweigh the conventional program’s lower minimum down payment. Examples include a borrower who finances the FHA upfront premium, receives eligible assistance or seller credits, or does not qualify for a 3% conventional program. The actual outcome depends on the lender’s pricing and the transaction’s prepaid and escrow amounts.
HUD directs buyers to state and local down-payment-assistance programs and housing counselors. Assistance availability, funding and borrower eligibility vary by location and program. Ask whether assistance can be combined with the FHA or conventional product you are considering and how it will appear on the Loan Estimate.
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When is a 3% conventional loan more likely to preserve cash?
An eligible HomeReady borrower may need less cash because the minimum down payment is 3% rather than 3.5%. The result is more favorable when conventional lender and third-party charges are competitive, the borrower qualifies for the $2,500 very-low-income credit, and the estimate does not contain larger prepaid or escrow requirements.
Eligibility is decisive. HomeReady’s income, property, credit and underwriting conditions apply, and a different conventional loan may have different minimums. Ask the lender to name the exact program and provide its eligibility determination rather than accepting “conventional” as a single set of terms.
What mistakes cause buyers to underestimate cash needed?
- Equating down payment with cash to close. The down payment is only one part of the settlement calculation.
- Ignoring financed FHA UFMIP. Financing the premium reduces the immediate check but raises the loan balance and future interest.
- Comparing different loan amounts or terms. A lower cash figure can result from borrowing more or choosing different pricing.
- Leaving out deposits and credits. A missing earnest-money deposit or an incorrectly applied credit can make an estimate look artificially high or low.
- Assuming every conventional loan offers 3% down. The documented 97% LTV feature cited here is for eligible HomeReady transactions.
- Using an old estimate. Rates, lender fees, insurance premiums, taxes, program rules and handbook guidance can change. For an active purchase, obtain current estimates and confirm current HUD and Fannie Mae requirements.
- Not planning for an appraisal gap. A purchase price above the accepted value can increase the buyer’s required funds.
What should I choose if my savings are limited?
Start with the loan for which you are demonstrably eligible, then choose the offer with the lowest sustainable cash-to-close figure after identical credits and deposits are applied. If the figures are close, compare the financed balance, monthly mortgage insurance, interest rate, total projected payment and the flexibility of each program—not just the amount due on signing day.
Before making a final decision, ask each lender for a written explanation of every cash-to-close line, whether FHA UFMIP is financed, and which assumptions could change. A HUD-approved housing counselor can also help you evaluate assistance programs and loan questions without substituting a generic percentage for your transaction-specific calculation.
Frequently Asked Questions
Can I pay FHA’s upfront mortgage insurance premium in cash instead of financing it?
Yes. HUD permits the upfront premium to be paid at closing or financed into the FHA loan for the applicable program. Paying it in cash requires more money on settlement day but avoids adding that premium to the principal balance.
Does an earnest-money deposit reduce the amount I need at closing?
A deposit already paid should be reflected as a credit in the Loan Estimate’s cash-to-close calculation. Check the estimate and settlement statement to ensure the amount, date and recipient are recorded correctly.
Where can I find down-payment assistance for either loan type?
HUD’s housing and loans resources point buyers toward state and local assistance programs and housing counselors. Each program sets its own income, location, property and repayment rules, so confirm compatibility with the exact FHA or conventional loan.
What should I do if the two Loan Estimates have different escrow amounts?
Ask both lenders to explain the tax, insurance and closing-date assumptions used to establish initial escrow. Request revised estimates with the same settlement date and verified insurance and tax information before comparing the cash figures.
