Low down payment options in Texas: 3% conventional, 3.5% FHA, and beyond

The question behind the question

Most buyers ask how much they need down. What they really need is a path: the cleanest program fit for the credit, income, property type, location, and available funds.

A veteran, a first-time Austin buyer, a USDA-eligible rural buyer, and a self-employed borrower with strong deposits can all land in different places even if they are looking at homes in the same price range.

3% conventional: several paths, different rules

A 3% down conventional mortgage is not one universal program. Fannie Mae's standard 97% purchase option is limited to an eligible fixed-rate, one-unit principal residence underwritten through Desktop Underwriter, and at least one borrower must meet the applicable first-time-homebuyer definition. Fannie Mae HomeReady can also reach 97% loan-to-value for an eligible one-unit principal residence, but it has its own income and underwriting requirements.

Freddie Mac Home Possible offers a 3% down path for eligible low- and very-low-income borrowers, while HomeOne offers a separate 3% option for qualified first-time buyers. Mortgage insurance normally applies above 80% loan-to-value. The right conventional path depends on the actual borrower, property, income limits, automated findings, and lender requirements.

3.5% FHA: a small difference in cash, a different loan structure

HUD defines FHA's minimum required investment as at least 3.5% of adjusted value for an eligible file. FHA is not only for first-time buyers. It is for a qualifying primary-residence purchase that fits the borrower, county loan limit, property, appraisal, mortgage-insurance, and lender requirements.

The half-point difference between 3% and 3.5% is only one part of the decision. Compare the actual rate, monthly mortgage insurance, upfront FHA mortgage insurance, conventional PMI, lender fees, credits, property fit, and cash reserves using the same purchase assumptions.

Where the money can come from

Permitted sources for a standard mortgage may include checking, savings, investment accounts, documented gift funds, or proceeds from selling another property. The source, ownership, transfer trail, and documentation all matter.

If your own funds are moving between accounts, coming from family, tied up in a business, or coming from a bonus or asset sale, I want to see that early. It is much easier to document the trail before you are under contract.

Seller credits can reduce eligible costs, not the down payment

A seller credit is negotiated in the purchase contract and applied against eligible costs that actually exist. It can help with lender and third-party charges, title and government items, prepaid interest and insurance, or initial escrow funding when the program and transaction permit. It cannot provide the required down payment, required reserves, or unrestricted cash back.

See the fixed $350,000 purchase with 3% down and an $8,000 seller credit. It separates price, loan amount, eligible costs, seller credit, earnest money, and tax prorations so the cash-to-close calculation is visible instead of being reduced to a slogan.

Austin cash-to-close reality

In Austin, the question is not just the down payment. Property taxes, insurance, HOA dues, commute, and post-closing reserves can matter just as much. A small down payment can preserve liquidity, but the payment and remaining reserves still have to make sense for the household.