Debt-to-income ratio of no more than 45%

Your debt-to-income, or DTI, is a percentage that tells lenders how much of your total monthly income goes toward debt payments each month, such as your credit cards and student loans.

Here’s how DTI is calculated:

(Total monthly debt) / (Gross monthly income) x 100 = DTI

For example, say you’re considering a mortgage payment of $1,200. You have a $300 student loan payment and a $250 car payment, and your gross income is $5,000. Here’s how you would calculate your DTI:

($1,200 + $300 + $250) / $5,000 = 0.35 or 35%

In some cases, you’ll need a DTI of 36% or less in order to borrow from certain mortgage lenders, especially if your credit score is below 700. If you can’t reduce your monthly debt to get below this level, you might want to apply for a smaller mortgage.

Learn More: How to Get a Small Mortgage Loan

Minimum down payment of 3%, or 20% with no PMI

Many people assume you have to put down 20% for a conventional loan. Fannie Mae and Freddie Mac, however, only require 3% down.

Good to know: When you put down less than 20%, many lenders will require you to carry private mortgage insurance (PMI) until you’ve accumulated 20% equity through home price appreciation, paying down your mortgage, or a little of each.

A piggyback loan — also known as an 80/10/10 loan — can get you out of this requirement. With a piggyback loan, you put 10% down, but the other 90% of the home’s purchase price is split into two mortgage loans: a main mortgage of 80% and a second “piggyback” mortgage of 10%. The combination of your down payment and the secondary mortgage allows you to avoid PMI.

Not everyone will get approved for a loan with a down payment as low as 3%. For example, Fannie Mae’s 97% LTV Standard mortgage — also known as a Conventional 97 loan — allows 3% down but requires at least one borrower to be a first-time buyer, and Freddie Mac’s Home Possible program requires a credit score of at least 660.

Use our mortgage calculator to determine your monthly payment and what home loan is right for you.

Here are some popular low-down-payment conventional mortgage programs to consider:

Tracy Sherwood-Knepple

Articles by Tracy Sherwood-Knepple