Conventional 97 Loan vs. FHA: Which One is Right for You?

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

A modern, all brick two story home with a concrete sidewalkFor first-time buyers in particular, buying a house may be an exciting and intimidating experience. There are two primary loan options for consumers wishing to buy a house in the United States: the FHA and the Conventional 97 Loan. When trying to choose which of these loan possibilities is the finest choice for you, it is important to evaluate the distinctive benefits and drawbacks that each one of them offers.

Here is a short comparison of the key guidelines for FHA loans and Conventional 97 loans:

 FHA Loans:

  • Down payment: as low as 3.5%
  • Credit score: as low as 580
  • Debt-to-income ratio: as high as 50%
  • Mortgage insurance: required for the life of the loan
  • No First time home buyer requirement
  • Upfront mortgage insurance premium: 1.75% of the loan amount

Conventional 97 Loans:

  • Down payment: 3%
  • Credit score: typically 620 or higher
  • Debt-to-income ratio: typically no higher than 45%
  • First time home buyer requirement
  • Mortgage insurance: required until the LTV reaches 78%
  • Upfront mortgage insurance premium: not required

It's important to note that these guidelines may vary depending on the lender and specific loan program. It's always best to check with the lender or loan officer to get the most up-to-date and accurate information. Additionally, it's also important to consider your individual circumstances and which loan program best suits your needs.

Minimum Credit Score

Conventional 97 Minimum Credit Score

Credit score graphicThe minimum credit score for a Fannie Mae Conventional 97 loan is 620. A credit score of 620 is considered to be a "fair" credit score and is on the lower end of the spectrum for conventional mortgage loan approvals.

However, lenders are permitted to require a higher credit score. As a general rule, a minimum credit score of 640 is required.

Keep in mind that having a higher credit score can help you qualify for a lower interest rate and better loan terms, and also give you more options to choose from among different loan programs.

If your credit score is below 620, it may be difficult to qualify for a conventional 97 loan, and you might consider other loan options or work on improving your credit score before applying for a mortgage. It's important to note that guidelines may change over time and different lenders may have different credit score requirements. It's recommended to check with your lender for the most current credit score requirements and guidelines.

FHA Minimum Credit Score

For an FHA loan, the minimum credit score is 500 with a 10% down payment. However, if the credit score is 580 or greater, the down payment requirement is only 3.5%. FHA financing has more lenient credit requirements compared to the conventional 97 loan.

Debt to Income Ratio

Conventional 97 Debt to income ratio

Debt to income graphicThe borrower must meet the required debt-to-income (DTI) ratios. Although Fannie Mae does not specifically state the DTI requirements for a Conventional 97 loan, the standard DTI ratio is 43% or lower according to most lenders' guidelines.

By dividing the borrower's gross monthly income by their monthly gross debt obligations, the lender determines the DTI ratio. With a lower DTI ratio, a borrower has less debt overall and is more likely to be able to make loan payments. It's crucial to keep in mind that different lenders may have different DTI requirements, and some lenders may have more lenient DTI guidelines for particular loan programs like Conventional 97. It is therefore advised to check with your lender for the most recent DTI requirements and guidelines.

FHA Loan Debt to Income Ratio

Less stringent credit score requirements apply to FHA loans. Although most lenders would prefer to keep the debt ratio at 43% or less, the lender permits a maximum DTI of 57% for FHA loans. FHA loans are better for high debt to income borrowers.

Loan Type

Conventional 97 Loan Type

A Fannie Mae Conventional 97 loan requires a fixed-rate mortgage. This means that the lender will not change the interest rate during the life of the loan, regardless of market conditions, providing the borrower with the security of knowing their mortgage payments for the entire loan term. It makes budgeting and planning for the future easier.

The loan term of a Fannie Mae Conventional 97 loan is 30 years, requiring full repayment within 30 years from the date of disbursement. The borrower will make fixed monthly payments, which include both principal and interest, during this period. At the end of the loan term, the borrower will have fully repaid the loan and own the property free and clear.

However, it's important to note that different lenders may have different loan terms and interest rate options, it's recommended to check with your lender for the most current fixed-rate mortgage guidelines and requirements.

FHA Loan Type

The borrower is given the option of fixed- or adjustable-rate financing by the FHA. The loan term options for the borrower are 30 or 15 years.

Mortgage Insurance

Conventional 97 loans, which are supported by Fannie Mae, permit a minimal down payment of 3%. However, if the down payment is less than 20%, borrowers must pay for private mortgage insurance (PMI). The cost of PMI varies depending on the borrower's credit score and can range from 0.46% for those with a credit score of 760 or higher to 1.5% for those with a credit score of 620. There is no upfront fee unless the borrower chooses the split premium option.

FHA Mortgage Insurance

FHA loans, like Conventional 97 loans, have multiple monthly mortgage premiums based on the term and down payment. However, one of the benefits of FHA financing is that the FHA does not adjust the mortgage insurance premium based on credit score. Whether an applicant has a 620 credit score or a 780 credit score, the cost of MI premium is always 0.85% of the loan amount. This makes FHA financing more beneficial for low credit score home buyers and homeowners who are refinancing. Additionally, borrowers are required to pay a lump sum fee at settlement, although this upfront premium can be financed into the loan.

Income Limit

Conventional 97 Income Limit

The Conventional 97 loan program that is offered by Fannie Mae does not have a specific income limit.

When determining the borrower's debt-to-income (DTI) ratio, which is one of the criteria used to qualify for the loan, the lender does, however, take into consideration the borrower's income. The standard DTI ratio for a conventional loan is 43% or lower, which means that the borrower's total monthly debt payments, including the proposed mortgage payment, should not exceed 43% of their gross monthly income.

This requirement is in place to ensure that the borrower is able to responsibly manage their financial obligations. In addition, in order for the borrower to be eligible for a conventional loan of 97, the lender requires that the borrower demonstrates a stable income and employment history, in addition to having a good credit score. It is highly recommended that you check with your lender for the most up-to-date guidelines and requirements as often as possible.

Lenders may have their own income and debt-to-income ratio requirements, so it is important to verify this information with them. Even if the borrower does not have a high income, but can demonstrate a good credit score, stable income, and a low DTI, it is possible that they will still be able to qualify for a conventional loan with a DTI of less than 97 percent.

FHA Income Limit

There is no income limit with FHA loans.

Loan Limit

Conventional 97 Loan Limit

Although it may be higher in high-cost locations, the Federal Housing Finance Agency (FHFA) has set the 2023 loan ceiling for a Conventional 97 loan at $726,200 in most regions of the United States. In this kind of mortgage, the borrower is only required to put down 3%; the rest 97% will be covered by the loan. Depending on where and what kind of property is being acquired, the loan limit may change. Based on the debt-to-income ratio, the FHFA will determine the maximum loan amount.

FHA Loan Limit

For most U.S. counties, the maximum loan limit is set at 60% of the conventional loan limit. This difference offers a significant advantage for conventional 97 loans.
See county loan limits


In conclusion, when deciding between the Conventional 97 Loan and FHA loan options, it is important to consider your individual situation. Your financial standing, credit score and other factors should be taken into account. Ultimately, the decision rests on what you can afford in terms of payment amount and interest rate. Choosing the right loan for yourself can make all the difference in your homeownership experience. Do your research and talk to a lender or financial advisor before making a final decision.

FHA - HUD Handbook 4000.1
97% Loan to Value Options
Fas: 97% TV Options