Conventional 97 Loan Requirements 2023

Beautiful 2 story home with a two car garage located in a suburban neighborhoodA conventional 97 mortgage is a popular loan program requiring only a 3% down payment. With a 97 loan, borrowers can become homeowners sooner by avoiding high down payment requirements. This type of loan is backed by Fannie Mae or Freddie Mac, which allows for lower down payments than many conventional loans.

While a conventional 97 mortgage makes buying a home more accessible, it does come with eligibility requirements borrowers must meet to qualify. Understanding the 97 loan guidelines for 2023 is vital when applying for this mortgage option.

What is a Conventional 97 Loan

A Conventional 97 mortgage is a type of conventional loan that requires only a 3% down payment. These loans are backed by Fannie Mae and were introduced in response to high home prices that made the traditional 20% down payment difficult for many buyers.

With a Conventional 97 loan, borrowers can qualify with just 3% down instead of the standard 5-20% down payment on a conventional loan. This lower barrier to entry makes homeownership more accessible.

The trade-off is that Conventional 97 mortgages require private mortgage insurance just like an FHA loan. But for buyers with limited funds for a down payment, a Conventional 97 can open the door to homeownership sooner.

Requirements for Conventional 97 Loan

The primary requirements to qualify for a conventional 97 mortgage loan include:

  • A 3% down payment
  • Good credit - minimum 620 FICO score
  • Debt-to-income ratio below 50%
  • Sufficient income documentation
  • Homebuyer education course completion
  • Lower MI premiums: reduced mortgage insurance premiums
  • Owner-occupied primary residence only
  • Loan limits on purchase price
  • May allow gifts: Funds gifted from family may be permissible for a down payment.
  • The mortgage amount can not exceed the local conforming loan limit

First-Time Homebuyer Requirement

In the mortgage application, it's a requirement that at least one of the applicants be a first-time buyer. According to the definitions provided by Fannie Mae and Freddie Mac, a first-time home buyer has not held ownership of any portion of a residential property within the past 36 months.

Meeting these requirements demonstrates to lenders you are ready to take on a mortgage loan responsibly. A steady income, strong credit, and budgeting correctly for your down payment and monthly mortgage payments are critical factors in getting approved.

While they only require 3% down, 97 loans have stricter requirements than standard conventional mortgages or government loans. We’ll explore the specifics of qualifying for a traditional 97 loan below.

Eligible Properties

The Conventional 97 program is designed for single-family residences, encompassing townhomes, condominiums, and rowhomes. There is potential eligibility for manufactured homes, but homes with two or more units and commercial properties do not qualify for this program.

Conventional 97 - 3% Down Payment

When applying for a 97 mortgage, a loan offered by some lenders that requires only a 3% down payment, the needed down amount will depend on the home's purchase price. To calculate this, you must multiply the purchase price by 3%. For example, if the house is priced at $200,000, you would need to make a down payment of $6,000. This is significantly lower than the traditional 20% down payment typically required for a conventional mortgage.

The lower down payment requirement of a 97 mortgage makes it more accessible for individuals who may not have saved up much money to put toward purchasing a home. However, it's important to note that a lower down payment could also mean higher monthly mortgage payments and the need to pay private mortgage insurance (PMI) until you reach a certain loan-to-value ratio. Considering the long-term financial implications before deciding on the down payment amount for a 97 mortgage is essential.

Gift Funds for the Down Payment and Closing Costs

Gift funds can originate from various sources and play a valuable role in assisting borrowers with their initial expenses. This includes individuals connected to the borrower through familial ties such as blood relations, marriage, domestic partnership, adoption, or legal guardianship.

It encompasses a wide range, from immediate family members, former family ties, godparents, spouses, individuals in the process of marrying the borrower, children, and other dependents.

Conventional 97 Loan Credit Score Requirements

To qualify for a 97 mortgage, you’ll need a minimum credit score of 620. The higher your score, the better your chance of approval and a lower interest rate offered. Here are the general 97 loan credit requirements:

  • Minimum credit score of 620
  • Ideal credit score of 680+ for the best rates
  • No late mortgage payments in the past 12 months
  • No major delinquencies in recent years
  • Low overall credit utilization rate
  • Mix of credit types in your history

Expect lenders to examine your credit report and score thoroughly. Review your credit reports from the three bureaus and correct any errors beforehand. Maintaining excellent credit improves your odds of 97 loan approval.

Debt-to-Income Ratio Limit for Conventional 97 Loans

Your debt-to-income (DTI) ratio compares your total monthly debt payments to your gross monthly income. Conventional 97 mortgage lenders want to see your DTI below 50%.

Divide your total monthly debt by your monthly income to calculate your DTI. For example, with $2,000 in monthly obligations and $5,000 in gross monthly income, your DTI would be $2,000/$5,000 = 40%.

Keeping your DTI at 50% or lower demonstrates you can manage mortgage payments alongside your other financial obligations. Having substantial monthly income left after debts helps you qualify.

Use a DTI calculator to check your ratio before applying for a better chance at approval. If your DTI is too high, paying down debts like credit cards can help lower it.

Income Documentation Required for a Conventional 97 Loan

Lenders require extensive income documentation as part of the 97 loan approval process. At a minimum, you’ll need to provide:

  • Pay stubs covering the past 30 days
  • W-2 tax forms from the past two years
  • Federal tax returns from the past two years
  • Written verification of employment

Self-employed applicants may need to provide additional documentation like business tax returns, financial statements, and bank records.

Provide accurate income documents to verify your steady employment and income to support mortgage payments. Having a substantial income that exceeds your monthly debts is critical.

Homebuyer Education Course for Conventional 97 Loans

Completing a homebuyer education course is a requirement to qualify for a conventional 97 mortgage. These courses cover budgeting, home-buying, loan options, and your rights as a borrower.

You can complete an approved course online, in person, or with a housing counselor. Your lender will provide a list of eligible homebuyer course providers. The procedure typically takes 2-8 hours and results in a completion certificate.

Homebuyer education helps first-time buyers understand the financial obligations of homeownership. The knowledge gained helps set you up for success as a new homeowner.

Purchase Price Limits on 97% LTV Loans

Conventional 97 loans, like FHA or conventional loans with PMI, have maximum loan limits.

The home you purchase must be at or below the local loan limits to qualify for a 97 loan. Higher-priced homes above these thresholds would be ineligible. The limits typically match those set for loans requiring PMI.

Check if a home is priced below the limits before making an offer to use 97 loan financing. The purchase price caps vary by number of units and location.

Occupancy and Property Type for Conventional 97 Mortgages

Borrowers must plan to use the home as their primary residence and personally occupy the property within 60 days of closing to qualify for a conventional 97 mortgage. Investment properties or vacation homes are not eligible.

You can purchase a 1-4 unit single-family home or condo with a 97 loan. Manufactured and mobile homes do not qualify. The house can be an existing property or a new construction.

Plan to move into the home as your first residence if aiming to use a 97 loan. Second homes and investment properties don’t meet the occupancy requirements.

Getting a Pre-Approval for a Conventional 97 Mortgage

Getting pre-approved for a 97 mortgage will make your offer more attractive to sellers. Pre-approval provides a letter indicating you meet the lender’s requirements for this loan program.

To get pre-approved:

  • Compare multiple lender rate quotes and programs
  • Submit your application documentation and fees
  • Pass the lender’s underwriting and evaluation
  • Receive a pre-approval letter with loan terms

The pre-approval letter specifies the loan amount, rate, and down payment you are qualified for based on the lender’s review. This demonstrates you can obtain financing for a 97% LTV conventional loan.

Next Steps After Pre-Approval for a Conventional 97 Mortgage

Once pre-approved, you can start looking for homes within your qualified price range and submitting offers. Your real estate agent will help you through this process.

Other next steps include:

  • Getting an accepted purchase agreement on a home
  • Completing the entire mortgage application with verification documents
  • Securing a home appraisal to confirm the value
  • Finalizing underwriting and approval with your lender
  • Setting a clear-to-close date and closing timeline
  • Reviewing closing disclosures and loan terms
  • Signing documents and completing closing
  • Taking possession as the new homeowner!

The pre-approval assures that you can obtain this financing while the remaining steps finalize the mortgage process.

Alternatives to the Conventional 97 Mortgage Loan

If you don’t qualify for a conventional 97 loan, here are a few alternative low and no-down-payment mortgage programs to consider:

  • FHA loan - Requires just 3.5% down and is more lenient on credit and debt ratios. But monthly mortgage insurance is required.
  • VA loan - No down payment is required if you are a qualified military member or veteran. Income limits apply.
  • USDA loan - It also features 100% financing options for low-income borrowers in rural areas. Availability depends on location.
  • Down payment assistance programs - State and local groups offer grants and loans to help cover the down payment, often combined with an FHA or conventional loan.
  • Adjustable-rate mortgages - Feature lower initial payments, but interest rates change over time. More risk comes with potential payment spikes.
  • 80/10/10 piggyback loans - Combines a first and second mortgage to cover the total price without PMI requirements.

Discuss options like these with a mortgage officer to see if they fit your situation better than a conventional 97 loan. There are many paths to homeownership, even if you can’t meet the 97 mortgage requirements right now.

Conventional 97 Loan Requirements Summary

The conventional 97 mortgage provides an excellent opportunity to buy a home with just 3% down and potentially lower PMI costs. But stricter eligibility standards exist compared to standard 97% LTV loans.

To recap, you’ll need:

  • Minimum 3% down payment from your savings
  • 620+ credit score and strong history
  • Debt-to-income ratio below 50%
  • Sufficient and verifiable income documentation
  • Homebuyer education course completion
  • Primary residence occupancy
  • Purchase price below limits
  • One unit only
  • Must meet the maximum loan limit for the location of the property


Carefully evaluate if you meet these requirements before applying for a conventional 97 mortgage; understanding qualifications and getting pre-approved positions gives you the best chance of making your homeownership dreams happen.

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Recommended Reading

How Much Down Payment for a Conventional Loan?
Frequently Asked Questions about Conventional Loans
Pros and Cons of FHA loans vs Conventional Loans
Income Guidelines to Qualify for a Conventional Loan