Conventional 97 Loan Pros and Cons for 2022

Get a conventional loan with only a 3% down payment.

First time home buyer graphicA conventional 97 loan is a low down payment loan that may be used to purchase or refinance a home. The loan balance may not exceed the county loan limit, and the mortgage insurance premium is lower than for a standard loan. To qualify for a conventional loan, the borrower's credit score must be at least 620.

Conventional 97 Loan Requirements for 2022

Fixed Interest Rate: Conventional 97 mortgages are low fixed-rate loans available to homebuyers with low down payments. It’s one of the simplest and most popular mortgages available, because it requires just a 3% down payment and has a low interest rate.

Nice houseProperty Type: When you're buying a home, one of the biggest decisions you'll make is what type of mortgage to choose. The dwelling can be a one-unit, single-family home, co-op, PUD, or condo. There are several types of mortgages available for each type of dwelling. Manufactured housing with a minimum of 5% down payment is allowed.

First Time Home Buyer: Conventional 97 home loans are only available to “first-time” home buyers and borrowers who have not owned a home during the previous three years.

Fannie Mae restricts these loans to “first-time” home buyers. If there are numerous borrowers signing on the mortgage, just one of them needs to be a first-time home buyer for the mortgage to be considered for approval.

Occupancy: The property must be owner occupied and cannot be an investment property. The eligible property types include single-unit family homes, cooperative housing, condominiums, and planned unit developments.

Loan Limit: Conforming loan limits for the county in which the property is located cannot be exceeded by the amount of the loan.

Private Mortgage Insurance: When you obtain a Conventional 97 loan, you will be required to pay private mortgage insurance (PMI) until you have reached 20 percent equity in the property. Your monthly mortgage payment includes the PMI premium, which is determined as a percentage of the total loan amount. After you have reached 20% equity, you are eligible to submit a request to have the PMI cost removed. When the percentage reaches 22 percent, the PMI requirement will automatically be canceled. Read more

Credit Score: According to Fannie Mae, applicants may be eligible for a Conventional 97 loan with a credit score as low as 620 provided they have a down payment of at least 3% of the total loan amount. It is advised, however, that you have a credit score of at least 680 if you want to be eligible for all of the perks that come with the loan.

Income Limits: Conventional 97 loans do not have any restrictions on the maximum borrower income.

Gift boxGift Funds: The down payment as well as the closing expenses could be covered by gift funds. There is no predetermined minimum amount that the borrower must contribute from their own finances toward the purchase. Read more

Seller Concession: For loans with a 3% to 9% down payment, the home seller is allowed to pay up to 3% of the sales price to the home buyer's closing costs.

With a down payment of 10% to 25%, the seller can pay up to 6% of the sales price toward the buyer's closing and prepaid costs.

Seller concessions must be clearly stated in the sales contract.
Read more

Home Buyer Education: When all the occupied borrowers are first-time homebuyers, a homeownership education course will be required of at least one of the borrowers. The usage of Fannie Mae HomeViewTM is an option for satisfying this prerequisite.

Conventional 97 Loan Debt to Income Ratio

When applying for a Conventional 97 loan, the maximum debt to income ratio is 43%. This means that your total monthly debt payments cannot exceed 43% of your gross monthly income. This includes mortgage, credit card, car loan, and student loan payments. If you have a lot of debt, you may need to find a way to reduce your monthly payments before you apply for a Conventional 97 loan. Read more

Conventional 97 Non-Occupant Co-Borrower

Non-occupant borrowers are credit applicants on a principal residence transaction who do not occupy the subject property. They may or may not have an ownership interest in the subject property as indicated on the title. They sign the mortgage or deed of trust note and have joint liability for the note with the borrower.
See Fannie Mae Selling Guide for more information

Conventional 97 Vs. HomeReady Loan

The HomeReady loan program is a mortgage loan program that was designed to help low- to moderate-income borrowers who may not qualify for traditional mortgages. The program offers a 3% down payment option, and allows for flexible underwriting criteria. HomeReady loans are available through Fannie Mae, and can be used to purchase a home or refinance an existing mortgage.

  • The Fannie Mae HomeReady program does not require the borrower(s) to be first time home buyers.
  • There are income limits with the HomeReady loan program. The HomeReady program requires borrower's income to be less than 80% of the area median income.  
    Fannie Mae area median income lookup

Borrowers have the option of enlisting the assistance of co-borrowers who will not reside in the new home. The application can take into account the total income of all family members who will occupy the property.

Conventional 97 and HomeReady Refinance Options

HomeReady: A Limited Cash-Out Refinance is available for transactions that are underwritten using automated underwriting when the mortgage being refinanced is owned or guaranteed by Freddie Mac.
Loan lookup site

Fannie Mae loan lookup.

Loans to be refinanced must currently be owned by Fannie Mae.
Loan lookup site.

The requirement that applicants be first-time homebuyers will not be enforced on refinance mortgages.

The Pros of a Conventional 97 loan

  1. The obvious pro for a Conventional loan is the minimum down payment of 3% (97% LTV).
  2. The down payment, closing and prepaid costs can be gifted, subject to the guidelines.
  3. There are no income limits.
  4. Seller concession of 3% with a 3% down payment.
  5. No upfront mortgage insurance is required.

The Cons of a Conventional 97 loan

  1. A minimum of one borrower must be a first-time buyer. A first time home buyer is a borrower who has not owned a home during the previous 3 years.
  2. Gift donors are limited (compared to FHA and USDA loan programs.
  3. The minimum credit score of 620 is higher than the FHA loan.

Home Possible Loan

Home Possible is a conventional loan program that offers a low down payment(3%) and a flexible debt-to-income ratio (43%). In order to be eligible for this program, you must have a credit score of 660 or higher, and your household income cannot exceed 80% of your area's median income. You must also plan to live in the home as your primary residence.

Freddie Mac Home Possible is designed to help first-time homebuyers and those who may have difficulty qualifying for a conventional mortgage. 

Borrowers who are interested in the Freddie Mac Home Possible program can work with a mortgage lender to pre-qualify. This will help them determine if they are eligible for the program and how much they can afford. 

The Freddie Mac Home Possible program is available in all 50 states and the District of Columbia.

Home Possible vs. Conventional 97

When it comes to buying a home, there are a few different loan options available to potential homeowners. Two of the most popular loan types are Home Possible and Conventional 97. Both of these loans offer a low down payment option, but there are some key differences between the two.

Home Possible is a Freddie Mac loan product that offers a low down payment of 3% for first-time buyers. The loan is available to borrowers with credit scores as low as 660, and there is no maximum income limit. The mortgage rates on Home Possible mortgages and the Conventional 97 loans are similar.

Conventional 97 is a mortgage offered by Fannie Mae that requires just a 3% down payment. This loan is available to all borrowers, regardless of their credit score or income level. The only significant difference between the two programs are the credit score requirements. Both loans are conventional loans.

How Does a Conventional 97 Compare to FHA Loans?

New home buyer receiving the keys to their homeA conventional 97 loan is a mortgage that is backed by the government but not insured by the Federal Housing Administration (FHA). This type of loan is available to anyone who meets the income and credit requirements. A Conventional 97 loan has a fixed interest rate and a term of 30 years. The minimum down payment for this type of loan is 3%.

An FHA loan is a mortgage that is insured by the FHA. This type of loan is available to anyone who qualifies for FHA insurance. An FHA loan has a fixed interest rate and a term of 30 years. The minimum down payment for this type of loan is 3.5%.

A USDA loan is a mortgage that is backed by the United States Department of Agriculture (USDA). This type of loan is available to anyone who meets the income and credit requirements. A USDA loan has a fixed interest rate and a term of 30 years. The minimum down payment for this type of loan is 0%.

VA loans are mortgages that are guaranteed by the Department of Veterans Affairs (VA). This type of loan is available to any veteran who meets the eligibility requirements. A VA loan has a fixed interest rate and a term of 30 years. The minimum down payment for

How do Conventional 97 mortgages differ from other conventional loans?

Conventional 97 mortgages are a type of conventional mortgage that allows borrowers to put just 3% down when buying a home. That means that the loan is 97% backed by the government, as opposed to other conventional loans which may be backed by private mortgage insurance (PMI). This makes Conventional 97 loans more attractive to borrowers who are looking for a low down payment option. In addition, the monthly mortgage insurance premium (MIP) on Conventional 97 loans is typically lower than the MIP on other types of conventional loans.

What Are the Restrictions for a Conventional 97 Loan?

A conventional 97 loan is a mortgage loan program available to homebuyers who are first-time buyers or repeat buyers (applicants who have not owned a home during the previous 3 years). The program is available through Fannie Mae. Conventional 97 loans are available through most mortgage lenders.

To be eligible for a conventional 97 loan, borrowers must meet the following requirements:

-The home must be the borrower’s primary residence

-The borrower must be a first-time homebuyer or a repeat buyer (see exception)

-The loan must be for a purchase or refinance transactions.

-The loan amount may exceed 97% of the purchase price of the home

Conventional 97 loans are a good option for borrowers who may not qualify for other loan programs, such as FHA or USDA loans. Loans through the Conventional 97 program work like any other conventional loan; they are funded by private lenders and backed by Fannie Mae.

Conventional 97% LTV & Credit Score Requirements

A conventional 97% LTV mortgage is a loan that has a minimum loan-to-value ratio of 97%. This means that the borrower can finance 97% of the purchase price of the home. The remaining 3% must be paid out-of-pocket by the borrower.

A conventional 97% LTV mortgage also requires that the borrower have private mortgage insurance (PMI). This is because the down payment on a 97% LTV mortgage is only 3%. Therefore, if the borrower were to default on the loan, the lender would be at risk of losing all of their money. To qualify for a conventional 97% LTV mortgage, the borrower must have a credit score of 620 or higher.

Conventional loan vs. FHA loan FAQ


What is the difference between a conventional loan and an FHA loan?

A conventional loan is a mortgage that is not backed or insured by the government, while an FHA loan is a mortgage that is insured by the Federal Housing Administration. borrowers with a credit score of at least 620 may qualify for a conventional 97 loan, while those with a credit score of at least 580 may qualify for an FHA mortgage. Mortgage rates for conventional loans are similar to FHA loans.

Conclusion

In conclusion, a conventional 97 loan is a great option for many home buyers. It offers a low down payment and a competitive interest rate. However, there are some drawbacks to consider before applying. Make sure you weigh the pros and cons to see if this loan is right for you.