What is the conventional 97 loan program?

The Conventional 97 program enables homebuyers to get a standard mortgage loan with only 3% down.

The program is called for the 97% of the home value that is financed by the lending institution after the buyer makes a 3% deposit.

The loan program can fund a single-family home or apartment system - as long as the purchaser prepares to utilize the home as a primary house.

Conventional 97 offers an alternative to FHA loans, which require a comparable 3.5% down payment.

In this short article:

Conventional 97 loan guidelines
Credit rating requirements
Conventional 97 mortgage rates
Conventional 97 vs FHA and other loan types
Conventional 97 loan FAQ
How to get a Conventional 97 Loan

2025 standard 97 guidelines

Aside from needing just 3% down, Conventional 97 loans work a lot like other traditional mortgage loans.

But this loan program works only for first-time home buyers - defined as purchasers who have not owned a home in the previous 3 years. For customers trying to find a low deposit mortgage, it can be an excellent mortgage alternative.

Here are some other Conventional 97 loan credentials:

- The loan needs to be a fixed-rate mortgage
- The residential or commercial property must be a one-unit single-family home, co-op, PUD, or apartment
- A minimum of one purchaser should not have owned a home in the last three years
- The residential or commercial property must be the owner's main residence
- A minimum of one borrower should take a homebuyer education course
- The loan quantity should be at or below $806,500

These features line up well with the typical newbie property buyer's profile.

For example, most buyers today are looking for a one-unit home - instead of a duplex or triplex - or a condominium that they plan to live in as their main residence. First-time buyers are also most likely to be seeking something with a lower purchase price.

Today's typical home price is around $350,000 according to the National Association of Realtors, putting a Conventional 97's average down payment at $10,500 - within reach for lots of home consumers.

By contrast, making a 20% deposit would require $70,000 upfront.

Check your eligibility for the standard 97% LTV program. Start here (Aug 20th, 2025)

Conventional 97 credit requirements

Many homebuyers assume they require impeccable credit history to receive a loan that needs only 3% down. That's not the case.

According to Fannie Mae's Loan Level Price Adjustment (LLPA) chart, a customer can have a rating as low as 620 and still qualify for a 3% down loan.

How is this possible? Private mortgage insurance, or PMI, is one reason. When you put less than 20% down, you'll pay these premiums which safeguard the lending institution in case you default.

This extra layer of defense for the lending institution allows the lending institution to use lower rates.

Check your 97% LTV rates. Start here (Aug 20th, 2025)

Is it worth paying PMI?

PMI gets a bad rap. But paying it can unlock decades of cost savings on interest for brand-new property owners.

Yes, personal mortgage insurance coverage would make the 3% down choice more costly on a month-to-month basis, at initially.

But the debtor's down payment requirement is substantially lower, allowing them to purchase a home rather - before house costs increase once again.

And remember, you can cancel PMI when the loan's balance reaches 80% of the home's value. Lenders call this percentage your loan-to-value ratio, or LTV.

When LTV falls to 78% of the residential or commercial property's worth, PMI automatically drops off.

Conventional 97 interest rates

Mortgage rates for the 3% deposit program are based upon basic Fannie Mae rates, plus a small rate boost.

However, this fee or rate boost is typically very little compared to the worth added from earlier home purchasing.

Someone purchasing a $300,000 home would pay about $80 more monthly by choosing the 97% loan alternative compared to a 5% down loan.

Yet, the purchaser reduces their overall in advance home purchasing expenses by over $5,000.

The time it requires to save an additional 2% down payment could imply higher property costs and harder certifying down the roadway. For numerous purchasers, it might show more affordable and quicker to select the 3% down mortgage immediately.

Low down payment alternatives to Conventional 97 loans

Conventional 97 loans vs FHA loans

Before Fannie Mae introduced 3% down payment conventional loans, more home buyers who needed a low deposit loan selected an FHA loan.

FHA loans are still the best choice for a great deal of purchasers. The Federal Housing Administration, which insures these loans, requires 3.5% down for a lot of new home buyers, putting an FHA down payment in the neighborhood of a Traditional 97's.

But unlike traditional loans, FHA loans permit credit rating below 620 - and as low as 580. Plus, the FHA doesn't add Loan Level Price Adjustments like traditional loans.

So, if your credit is borderline - just barely sufficient to receive a Traditional 97 - you might draw a better-rate loan from the FHA.

The catch is the FHA's mortgage insurance. Unlike PMI on a traditional mortgage, FHA mortgage insurance coverage premiums (MIP) won't disappear unless you put 10% or more down. You'll keep paying the yearly premiums up until you pay off the loan or refinance.

The FHA likewise charges an upfront mortgage insurance coverage premium. This one-time, upfront cost amounts to 1.75% of the loan quantity for many debtors.

Conventional 97 vs other government-backed loans

FHA isn't the only government-backed loan program. Two other programs - USDA loans and VA loans - use new mortgage with no cash down.

Unlike FHA and standard loans, USDA and VA loans won't work for simply any borrower.

VA loans go to military members or veterans. They're a perk for people who have served. And they're an attractive perk. Together with putting no cash down, VA borrowers won't pay yearly mortgage insurance coverage - simply an in advance funding cost.

Zero-down USDA loans operate in rural and rural locations and just for borrowers who make less than 115% of their area's average earnings. They likewise require a greater credit rating - typically 640 or higher.

Conventional 97 vs other low down payment standard loans

Fannie Mae and Freddie Mac use more than one low down payment loan. Up until now in this post, we have actually been discussing Fannie's basic 3% down mortgage.

But some customers might prefer:

Fannie Mae's HomeReady: This 3% down loan is created for moderate-income debtors. If you earn less than 80% of your location's mean earnings, you may receive HomeReady. What's so excellent about HomeReady? In addition to low deposits, this loan provides decreased PMI rates which can lower your regular monthly payments
Freddie Mac's Home Possible: This 3% down loan works a lot like HomeReady. It includes the capability to utilize sweat equity toward the down payment. This can get made complex, and you 'd require the seller's approval beforehand. But it is possible.
Freddie Mac HomeOne: This 3% down loan looks like the standard Conventional 97 from Fannie Mae. Unlike HomeReady and Home Possible, there are no earnings restricts to fret about.

Your loan officer can assist recognize the low down payment loan that works finest for you.

Check your eligibility for a 3% down payment conventional mortgage. Start here (Aug 20th, 2025)

97% LTV Home Purchase FAQ

What is a Standard 97 loan?

A Conventional 97 is a traditional mortgage that requires only 3% down. It's called for the remaining 97% of the home's value that the mortgage will finance.

How do you certify for Conventional 97?

Receiving a Standard 97 loan needs a credit rating of at least 620 most of the times. Debt-to-income ratio (DTI) ought to likewise fall below 43%. There are no earnings limitations. Borrowers who already own a home or who have actually owned a home in the previous 3 years won't qualify.

Do all lending institutions offer Conventional 97?

Most lending institutions offer Conventional 97 loans. This product complies with Fannie Mae's rules. Lenders that provide Fannie Mae loans will likely offer this 3% down product.

Can closing expenses be included in a traditional 97 loan?

No. As its name shows, the Conventional 97 program can finance approximately 97% of a home's evaluated worth. Rolling closing costs into the loan amount would push the loan beyond this 97% threshold. However, many newbie property buyers receive deposit and closing expense assistance grants and loans. Conventional 97 also permits present funds. This suggests family members or pals might assist you cover closing expenses.

Who offers Conventional 97 loans?

Most private mortgage lenders - whether they're online, downtown, or in your area - deal Fannie Mae standard loans that include Conventional 97 loans.

Exists a minimum credit history for the 3% down payment program?

Borrowers require a credit score of at least 620 to get any Fannie Mae-backed loan. The exception would be those with non-traditional credit who have no credit score. Mortgage loan providers can set their minimum credit history higher than 620. Some may require 640 or 660, for instance. Make certain to talk to your mortgage lender to learn for sure.

Can I use down payment present funds?

Yes. Fannie Mae specifies gift funds may be used for the down payment and closing costs. Fannie does not set a minimum out-of-pocket requirement for the purchaser. You might likewise receive down payment support. Your mortgage officer can assist you find programs in your state.

Can I purchase a condominium or townhouse?

Yes. Buyers can buy an apartment, townhouse, home, or co-op using the Conventional 97 program as long as it is only one unit.

Can I purchase a produced home with 3% down?

No. Manufactured homes are not permitted with this program.

Can I buy a 2nd home or investment residential or commercial property?

No. The 97% loan program may be used only for the purchase of a main residence.

I owned a home two years ago however have been leasing given that. Will I certify?

Not yet. You should wait until three years have actually passed considering that you had any ownership in a home. At that point, you are considered a novice home buyer and will be qualified to obtain a Conventional 97 loan.

Will mortgage insurance companies provide PMI for the 97% LTV mortgage?

Yes. Mortgage insurance companies are on board with the program. You do not have to find a PMI business because your loan provider will purchase mortgage insurance for you.

Just how much is mortgage insurance coverage?

Mortgage insurance differs commonly based on credit history, from $75 to $125 per $100,000 obtained, monthly.

Can I get an adhering jumbo loan with 3% down?

No. This program will not let lending institutions go beyond adhering loan limits. At this time, high balance, likewise called adhering jumbo loans - those over $806,500 - are not qualified.

I'm already approved putting 5% down, however I wish to make a 3% down payment instead. Can I do that?

Yes. Even if you've already been through the underwriting process, your lender can re-underwrite your loan if it uses the Conventional 97 program. Keep in mind your debt-to-income ratio will rise with the higher loan quantity and potentially greater rate.

Check your mortgage rates. Start here (Aug 20th, 2025)

What's the maximum debt-to-income (DTI) ratio for the 97% LTV program?

Your overall profile consisting of credit rating identifies your DTI optimum. While there's no unalterable number, a lot of lenders set a maximum DTI at 43%. This implies that your future principal, interest, tax, insurance coverage, and HOA fees plus all other month-to-month debt payments (trainee loans, charge card minimum payments) can be no greater than about 43% of your gross earnings.

Can I use the 3% down program to re-finance?

Yes. If you have an existing Fannie Mae loan, you might be able to refinance approximately 97% of the existing value. Refinancing may allow debtors to lower their month-to-month payments or remove mortgage insurance coverage premiums.

Click here for additional information about the 97% LTV refinance program.

Why is the program only for first-time home purchasers?

Fannie Mae's research revealed that the most significant barrier to homeownership for newbie property buyers was the down payment requirement. To stimulate more individuals to buy their first home, the minimum down payment was reduced.

Are there income limitations?

The standard 3% down program does not set limits on your income. However, the HomeReady 97% loan does require the debtor to be at or below 80% of the location's mean income.

What is a HomeReady mortgage?

HomeReady is another program that needs 3% down. It has versatilities integrated, such as utilizing income from non-borrowing household members to certify.

To see if you certify for the HomeReady program, see the total guidelines here.

What is the Home Possible Advantage program?

HomeReady is another program that requires 3% down. HomeReady loans have flexibilities built-in, such as utilizing income from non-borrowing home members to qualify.

How to get a standard 97 loan

The Conventional 97 mortgage program is available immediately from lenders throughout the nation. Talk with your lending institutions about the loan requirements today.