Conventional 97 Mortgage: What you need to know

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

First time home buyer graphicThe Conventional 97 mortgage was designed as an alternative to FHA loans, providing prospective borrowers with more lending product options.

The Conventional 97 is a Fannie Mae (Federal National Mortgage Association)-backed mortgage that permits a 3% down payment, ultra-low mortgage insurance rates, and permits gift funds.

Fannie Mae has worked for the past 15 years to improve access to credit and financial services.

The Conventional 97 program provides low to moderate income families with no credit history with the opportunity to get a conventional mortgage loan at interest rates far lower than those offered by the market along with significantly reduced down payments and other closing charges.

Fannie Mae has been working on providing low to moderate first time home buyers mortgages for some time now, and one of the recent advancements it has made is the Conventional 97 Loans Program.

In the past, homebuyers had to rely on banks to approve mortgage applications. This could take weeks or even months. When banks received an influx of mortgage loan applications, they occasionally denied all of them because the applicants lacked the funds to purchase a home.  This made buying a home a risky proposition for many people.

The Conventional 97 loan program is intended to assist home buyers, who, in the absence of this program, would have had a more challenging time purchasing a home. I'll explain why you should consider the new Conventional 97 mortgage program.

This article will explain what a Conventional 97 loan program is and why it may be a fantastic alternative for individuals who are searching for a loan to purchase a home. In addition, we will discuss why this program is a good choice.

2022 Conventional 97% LTV Home Buying Guidelines

New home buyer receiving the keys to their homeExisting conventional loan programs are comparable to the Conventional 97 loan that requires only a 3% down payment.

The rates are reasonable, and there is a large selection of lenders who participate in the program. Many of today's home buyers will meet the guidelines for this new loan option.

The three percent down loan is a popular way to finance your mortgage, especially when you have a low down payment. A down payment of 3 percent is usually required for a conventional loan. It's easy to qualify for a 3% down loan, so it's a great option for first time homebuyers who want to get into the market.

It's true that the average American home is worth more than it was five years ago, but it's still not enough to buy a home outright. The average price for a home is $250,000, but you still need a minimum down payment of 5%. So, if you were to purchase a home worth $500,000, you would need to put down $25,000.

Conventional 97% LTV Credit Requirements

When you apply for a mortgage, your lender will want to see that you have enough money to pay back the loan. To qualify for a loan, lenders generally require that you have a credit score of at least 620. Lenders also look at other factors, including your debt-to-income ratio (DTI). A DTI of less than 45 percent is considered "ideal.

Credit scores are calculated based on a number of factors including your payment Nice househistory, debt to income ratio, and the types of loans you have. Your credit score is also affected by the amount of time you have been making payments on time. In fact, if you have had a negative credit score for a long period of time, it may take you longer to get a loan.

Conventional 97 Requirements

Monthly Income

There are no income limitations with the Conventional 97 program.

Credit Score

Fannie Mae requires a 620 minimum credit score; but they prefer a 680.

Debt-to-income ratio Requirements

The automated underwriting program calculates the debt-to-income ratio (DTI).

If the applicant has outstanding student loan debt and the payment amount is listed on the credit report, the applicant may be permitted to use that amount to fulfill the qualifying requirements if the payment amount is listed on the credit report. However, this only applies if the applicant has outstanding student loan debt.

In the case that the credit report does not reflect a payment amount, the lender may either use 1 percent of the total outstanding student loan debt or calculate a payment that, depending on the terms of the loan repayment arrangement, will fully amortize the loan.

Your payment will include both the interest for the unpaid balance and the late payment fee. It is crucial to note that these two fees may not be listed in your credit reports, therefore it is essential to read and comprehend all of your bills thoroughly.

The debt-to-income ratio (DTI) should be no more than 43 percent.

First Time Home Buyer Requirement

At least one of the borrowers involved in the purchase needs to be a first-time buyer (no ownership interest in other residential properties in the previous three years).

 For limited cash-out refinances, the first-time homebuyer requirement is waived.

Gift Funds

Gift boxGift funds for the down payment, closing costs and prepaid expenses are allowed. The highest debt-to-income ratio that mortgage applicants can have is 41% if they wish to use gift funds for the down payment.

There are limits regarding the origin of gifts. A buyer may accept from a relative, including a spouse, a child, or anybody connected by blood, marriage, adoption, or legal guardianship. Also acceptable are gifts from a fiancé/fiancée or a domestic partner. Learn about Gift money

Homeownership Education Requirements

Homeownership education requirements are an important aspect of the mortgage application process. If you are purchasing a house for the first time, you will need to participate in a homeownership education program. A free homebuyer education course from Homeowner's Institute is a good place to start.

People holding a sign that says interest rateInterest Rates

To compensate for the lower down payment, the interest rate will normally be 1/4% more than on other loans of the same type.

Loan Term

30 year fixed rate only.

Property Types

One- to four-unit single-family homes, condominiums, and planned unit projects are all eligible. Manufactured homes are not permitted.

Private Mortgage Insurance

Conventional 97 mortgages require a minimum 20% down payment.

Mortgage insurance is often discontinued when the equity in the house reaches a predefined level, which is usually set at 20%.

There is no upfront payment of the mortgage insurance premium.
Read about Private mortgage insurance

Refinance Option

The Conventional 97 Mortgage allows for a limited cash-out refinance.

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

To proceed, the lender must provide evidence that the previous loan is held (or securitized) by Fannie Mae.

The loan holder's servicing system, the current servicer, or even Fannie Mae's Loan Lookup can provide documentation.

How Do Conventional 97 Loans Compare to FHA Loans?

Conventional 97 loans are typically used for people who have good credit, but have a high rate of debt. They're also often used by those who don't have the cash on hand to pay a 20 percent down payment.

FHA loans are made for people who might not qualify for a conventional loan, and instead must put down a lower down payment (3.
5%). They're usually used by people who are willing to take on a higher level of debt.

A conventional loan is a mortgage that is not insured by the Federal Housing Administration (FHA). This means that the lender will not be able to pay your loan if you default on it.

You have to meet certain criteria in order to qualify for a conventional loan, so you'll need to shop around to find a lender that will be able to work with you.
You will need to be a good credit risk in order to get a loan with a low down payment.

FHA is a government-sponsored mortgage insurance program that was created in 1934 to help the average person get a home loan.

The real estate programs are available to homeowners with as little as 3. 5% down, and they offer you the opportunity to purchase your dream home without paying any mortgage for 3 years or more.

The FHA mortgage has an equivalent PMI, but the mortgage insurance never goes away.

This is an ideal choice for you if you would want to acquire a house with a down payment of less than twenty percent or if you would prefer to have a little more leeway in the conditions of your loan.

There are many factors that you need to consider when trying to decide which is the better option for you. Because of this, it's difficult to make a direct comparison between the two loan types.

Both loan programs have very low down payments, but there are enough differences between them that you can't just pick one thing (like the down payment) and say that one is better than the other.

Rotating question markFrequently Asked Questions (FAQs)

Q. Am I able to use a conventional 97 loan to buy a condo or townhome?
A. Yes, you may buy a condo or townhouse with a Conventional 97 loan (if the development is Fannie Mae approved).

A down payment of just 3% makes this loan perfect for those who want to buy a property, but don't have a large amount of money saved up.

Q. Can I refinance my house using the 3% down conventional program?
A. Yes.

Q. Can I use a conventional 97 loan to purchase an investment property?
A. No.

Q. Can I use down payment gift funds for the conventional 97 Loan?
A. Yes.

Q. Does the Conventional 97 loan require mortgage insurance?
A. If the down payment is less than 20%, answer is yes.

Q. How much is private mortgage insurance?
A. The mortgage insurance cost is determined by down payment and credit score. Your lender can pin point the cost.

The 97% loan program may only be used for the purchase of a primary residence.

Q. Does the standard 3% down program does not set limits on your income.
A. No

Q. What are some alternatives to the Conventional 97 loan?
A. The FHA is a worthy competitor.

Q. Does the PMI automatically drops off.the loan balance reaches 78% of the property's value?
A. By federal law, PMI will drop off when there is 22% equity.


In conclusion, a Conventional 97 loan is a great way to make a down payment on a home. It is a low-interest loan that is available to most borrowers. With a Conventional 97 loan, you can buy a home with as little as 3% down. This makes it easier for many people to purchase a home. If you are thinking about buying a home, be sure to check out the Conventional 97 loan.

Low Cost Loan Alternatives

FHA Mortgage

FHA logoA Federal Housing Administration-insured mortgage is known as an FHA Loan. They permit borrowers to finance homes with as little as a 3.5 percent down payment and are favored by first-time purchasers. FHA loans are a fantastic alternative for first-time homeowners who may not have a sizable down payment. An FHA-backed mortgage is available to even individuals who have experienced bankruptcy or foreclosure. Learn more at FHALoanPlus

USDA Mortgage

USDA logoA USDA home loan is a great option for first-time homebuyers because it comes with more relaxed qualifications than most other mortgage programs. However, there are still some qualifications that the homebuyer and the property must meet in order to be eligible for a USDA loan.
Learn more at USDALoanPlus

VA Mortgage

VA logoFor veterans and active-duty servicemembers, the VA mortgage loan is a great way to buy a home with zero down payment. VA loans have been around since 1944 and help more than 22 million borrowers buy or refinance a home. Learn more at VALoanPlus

HomeReady Mortgage

Fannie Mae and Freddie Mac graphicHomeReady financing from Fannie Mae is designed for both first-time and repeat homebuyers. Additionally, a HomeReady loan can be utilized to refinance an existing mortgage.

The HomeReady mortgage requires only a 3% down payment (or equity for a refinance). A 3% down payment on a $100,000 home costs only $3,000. A prospective homeowner may make a greater down payment if they so wish.
Learn more about HomeReady