Conventional 97 Loan Requirements 2022

Investigate the conventional 97 mortgage options from Fannie Mae that only need a 3% deposit.

For many home buyers, the ability to pay the down payment on a house is a major concern. This is particularly true for first-time homebuyers who might not be familiar with what a typical down payment looks like. It’s often said that 20% down is what you should aim for, but is that really the case, and are there ways to lower this number and keep your down payment as low as possible?

The answer, of course, is yes. There are several loan programs available that can keep your down payment well below 20%. When buying a new home, some programs even let you put down as little as 5%–10% of the price. However, if you’re looking for your best option, you might want to consider Fannie Mae’s Conventional 97 mortgage program. You can borrow up to 97% of the value of your home with this loan, leaving you with just 3% for a down payment.

What Is a Conventional 97 Loan?

Conventional 97 Loan Requirements 2022

A Conventional 97 loan, as its name suggests, is a type of mortgage that permits you to have a loan-to-value (LTV) ratio of up to 97%. This means that if a home costs $100,000 to buy, you can borrow up to $97,000 and only have to put down $3,000 as a down payment.

Of course, a Conventional 97 mortgage is more appealing than some other widely used loan types. Even if buyers don’t have a lot of cash on hand, these loans are intended to help them purchase the homes they want. These loans have a distinct advantage over some other loan types as a result, especially those that call for down payments of 10% to 20% of the home’s total value.

Of course, this does not imply that conventional 97 loans are a universally applicable mortgage product. While another borrower might locate a better loan elsewhere, a conventional 97 might be exactly what one borrower needs. It’s crucial to consider all of your options and find the one that best suits your unique situation in order to choose the mortgage that is best for you and your financial situation.

Conventional 97 Loan Origins

The Conventional 97 mortgage was created to serve as something of an alternative to loans backed by the Federal Housing Administration (FHA), giving potential buyers more options when it came to choosing a loan product. Though Fannie Mae is sponsored by the federal government, it exists as an independent company and the loans it offers are not government-backed loans.

Based in part on research into the difficulties faced by first-time home buyers, conventional 97 loans were developed. Fannie Mae discovered that trying to accumulate enough money to cover a down payment and closing costs for a mortgage loan was one of the biggest issues that first-time homeowners ran into. The company developed a new loan product that would make home ownership simpler for first-time buyers while still offering value to repeat buyers, drawing inspiration from the popularity of FHA loans.

Conventional 97 Loan Terms

The conventional 97 loan adheres to the majority of the common terms of standard conventional loans, but not all of them. A breakdown of the programs highlights include:

  • Loan Limits: Loan amount must not exceed conforming limit for the county in which the property is located
  • Loan Type: Must be a fixed-rate mortgage with a term not exceeding 30 years
  • Property Type/Eligibility: Must be owner occupied. Cannot be an investment property. Eligible property types include:
    • Single-Unit family home
    • Cooperative
    • Condominium
    • Planned unit development (PUD)
  • Mortgage Insurance: While no upfront fee is required, borrowers must pay private mortgage insurance (PMI), a standard for conventional loans of 80% LTV or higher. PMI is typically removed once the borrower’s LTV reaches 78%.
  • Down Payment: No less than 3% of purchase price. No minimum contribution from borrower required. Payment can be sourced from:
    • Gift fundsDown payments made with gifts may result in an increase in the loan’s credit requirement.
    • Community seconds
    • Grants
    • Seasoned cash-on-hand
  • How a Conventional 97 Mortgage Works

    Although the Conventional 97 mortgage is similar to other loan products you’ll find on the market, it also has some distinctive features. The specifics of your loan will depend on your particular circumstances, but the following is an overview of what to anticipate from a Conventional 97 loan:

  • First-Time Home buyers: Fannie Mae restricts Conventional 97 loans to “first-time” home buyers, though this is a bit of a misnomer; you can still qualify if you’ve owned a home before, just so long as you haven’t owned property in the last three years. If there are multiple borrowers signing on the mortgage, only one of them needs to be a first-time home buyer to qualify.
  • Credit Requirements: According to Fannie Mae, borrowers may qualify for a Conventional 97 loan with a credit score as low as 620. But in general, it is recommended that you have a credit score of at least 680 to qualify for all of the features of the loan.
  • Fixed-Rate Loan: The Conventional 97 is a fixed-rate 30-year mortgage. While some competing loan products may feature adjustable interest rates, the rate is locked in for a Conventional 97 loan. Typically, the rate will be around 25 basis points (0.25%) higher than other loans of the same type to offset the lower down payment.
  • Property Value: The maximum property value that you can purchase with a Conventional 97 loan is based on the area in which the property is located. For most counties, the value of the property is capped at around $453,100 (though this may change based on Fannie Mae policies). For counties that are designated “high-cost” counties, this amount is increased to around $679,650. Fannie Mae provides an online lookup tool here to let potential home buyers search for properties by address to find out the exact value caps.
  • Income Limits: There are no income limits on Conventional 97 loans.
  • Property Types: Homes purchased with a Conventional 97 mortgage must be single-unit dwellings that the buyer intends to use as a primary residence. Multi-unit properties are not allowed, and no investment or vacation properties are allowed. The property can be a house, condominium, or co-op, or it can be part of a planned unit development (PUD). Manufactured homes are not eligible for Conventional 97 loans.
  • Mortgage Insurance: Mortgage insurance is required for Conventional 97 loans. Once a specified amount of equity has been created (typically 20%), the mortgage insurance can typically be canceled. An Upfront Mortgage Insurance Premium payment is not required.
  • Down payment Sources: Fannie Mae allows multiple sources of down payment funds on top of traditional savings. There is also no minimum percentage of the borrower’s contribution if multiple funding sources are used. For a Conventional 97 loan, you can use all of the following as a source for a down payment:
    • Savings
    • Gifted funds
    • Grants
    • Cash on hand (must have been in possession of the funds for at least 60 days)
    • Community Seconds mortgage funds
  • Depending on your credit rating, current interest rates, and any additional factors specific to your borrowing situation, the terms of your loan may change.

    Qualifying for a Conventional 97 Loan

    With only slightly stricter credit requirements than its FHA counterpart, qualifying for a conventional 97 loan isn’t all that different from qualifying for most conventional loans, with a few exceptions. You now know about the loan, but what about the loan requirements? To qualify for the program, borrowers must meet the following requirements:

  • Must have a credit score of 620 or higher
  • At least one borrower must qualify as a first-time home buyer
    • not own a home within three years of submitting an application for a conventional 97 loan.
  • Must have a debt-to-income ratio (DTI) of no more than 43%
  • Another feature that distinguishes conventional 97 loans from other low down payment loan options is that there is no upper income limit for them.

    It’s relatively easy to qualify for a Conventional 97 mortgage as long as you meet the program requirements. A qualifying credit score, being a first-time home buyer, and the property being purchased all need to be met for you (or the person signing the loan) to be eligible. Although mortgage insurance is necessary, you are not required to pay a premium up front as part of the loan’s closing costs, so you won’t need extra money to pay for that expense.

    The application process includes a requirement for income documentation. Contrary to some loans, if you are self-employed and lack payroll stubs to demonstrate your income levels, you may still be eligible for a Conventional 97 loan. For the self-employed, federal income tax returns from at least two years must demonstrate consistent income levels over the reported time period.

    The approval process for your loan can take up to a month, but final approval and underwriting are typically completed in 20 to 30 days. It’s possible that you won’t be eligible for the full 97% LTV coverage depending on your circumstances. This choice will probably be made based on elements like your credit rating and income level, though it’s also possible that other elements of your situation or characteristics of the property itself may be taken into account.

    Is This the Same Thing as a HomeReady Loan?

    Some people confuse HomeReady loans, another low down payment mortgage product from Fannie Mae, with conventional 97 loans. It makes sense given that both loans have low down payments for those who qualify and were created to make home ownership more accessible. The two loan programs, however, are distinct from one another, with HomeReady loans aiming to a slightly different group of borrowers than Conventional 97 mortgages.

    The HomeReady program is specifically designed to assist people with low to moderate incomes in obtaining mortgage financing. It has the same cutting-edge features as the Conventional 97, including the ability to eliminate mortgage insurance once the buyer accumulates 20% equity, and it also has a 97% LTV. A few unusual underwriting circumstances, like receiving income from boarders, are also permissible. For HomeReady mortgages, there is also a required homeowner education course, though this can be completed online using the online Framework tool provided by Fannie Mae. Only people who meet the loan’s income requirements are eligible for a HomeReady mortgage.

    In contrast to HomeReady, the Conventional 97 program accepts borrowers with a variety of incomes. You would probably submit an application for this Fannie Mae product if your income is within HomeReady’s guidelines and you meet its other requirements. However, you can still apply for a Conventional 97 loan with Fannie Mae if you are not eligible for HomeReady.

    Are You an Ideal Conventional 97 Borrower?

    After learning more about Conventional 97 loans, it’s important to consider whether your current situation is a good match for the loans. While you can technically qualify for a Conventional 97 loan with a FICO credit score as low as 620, if you expect to enter the loan with only the bare minimum requirements, you may not get all that you want out of the loan.

    Examine the list of loan requirements once more, and consider whether you meet Fannie Mae’s criteria for a borrower. Do you (or your co-signer) meet the criteria for “first-time” home buyers, or will you need to wait a while before that three-year period expires? Do you have at least the recommended 680 credit score? You may still qualify for a loan even if you don’t, but you won’t get nearly as good of an interest rate, and some loan features, like mortgage insurance cancellation, may not be available as quickly as you’d like.

    Before you apply for a loan, you may need to take some time to address a few issues if you want to ensure that you meet all of the program’s requirements. Reduce your debt-to-income ratio until it is well below 43%, which means that the total of your debts accounts for no more than that percentage of your yearly income. Make sure you pay all of your bills on time, and try to pay off any remaining debts and old bills as much as you can. Before you apply, you’ll want to minimize your debt obligations and raise your credit score as much as you can. Start early because it might take a few months for these changes to appear in your credit report.

    Make sure you’re okay with a locked-in interest rate and consider how the loan payments will fit into your budget. Although you’ll be protected from future changes in the market with a fixed rate, you’ll have that rate for 30 years, and it might end up costing more than you would with some other loans. That’s one of the major drawbacks of fixed-rate loans, but regrettably, the Conventional 97 mortgage only offers that as an option.

    If you already have a mortgage, you might be able to refinance it into a Conventional 97 loan as long as Fannie Mae also owns the initial loan. This may lower your monthly payments and result in a lower interest rate than what you had been paying on your initial loan. Ask your current lender if the loan was underwritten by Fannie Mae if you’re unsure whether Fannie Mae owns your original loan.

    It’s important to know that a Conventional 97 loan does not allow for “cash out” refinancing. This implies that you cannot refinance a property for which you already have a mortgage and borrow money above the balance of the existing loan. If you have a mortgage on a $250,000 house and have amassed $150,000 in equity, an illustration of this would be attempting to refinance the remaining $100,000 by taking out a $150,000 loan. With a Conventional 97 refinance, Fannie Mae will not permit you to receive $50,000 “out” of the equity on top of the loan.

    With a Conventional 97 loan, you can perform a “cash in” refinance (where you put down more money to lower the principal of the initial loan). A limited cash-out refinance, which enables you to refinance and receive a small sum out (typically the lesser of 2% of the loan amount or $2,000), may also be an option for you.

    How Does a Conventional 97 Compare to FHA Loans?

    FHA loans and conventional 97 loans are frequently contrasted, and for good reason. Both loan programs are intended to make it simpler for people to buy a house without having to put down a sizable sum of money, and they frequently enable home ownership for those who wouldn’t otherwise be able to qualify for a more typical loan. Some people assert that conventional 97 loans are “better” than FHA loans because of the lower required down payment, but it all depends on your circumstances.

    The Conventional 97 might be a better choice if you have good credit and don’t mind being bound to a 30-year loan. However, you might be better off with an FHA loan if your credit is less than ideal or you want a little more flexibility with your loan options. The FHA loan will probably offer you a better interest rate over the course of the loan term, even though your conventional 97 loan will require a smaller down payment and give you the opportunity to eventually cancel your mortgage insurance. When attempting to decide which one is the “better” option for you, there are numerous factors to take into account.

    Because of this, it is challenging to directly compare the two loan types. While they undoubtedly share features, such as low down payments, you can’t simply choose one characteristic (such as the down payment) and declare one loan program to be better than the other.

    What About VA and USDA Loans?

    In addition to FHA loans, there are other government-backed loans that you might be eligible for. Some of these are even more appealing than the Conventional 97 because they occasionally offer loan products with as little as 0% down. Loans from the Veterans Administration (VA) and loans from the United States Department of Agriculture (USDA) for rural development are the two most well-known of these.

    Similar to FHA loans, it is challenging to directly compare Conventional 97 loans to VA or USDA loans due to the variations in the loan products. Since VA loans are only available to people who have served in the armed forces (and their families), many prospective homebuyers would not be eligible for them. Similarly, USDA loans are only available for rural properties and for some properties that you couldn’t buy with a conventional loan.

    Consider your unique situation and attempt to match it with the loan that will best meet your needs rather than comparing these loans and trying to determine which one is “best” overall. The time you invest in matching a loan product to your circumstances will go a long way toward helping you find the loan that most closely matches what you actually need from a loan product, whether it be a VA loan, a USDA loan, an FHA loan, or a Conventional 97 loan.

    Conventional Loans: In Review

    Conventional 97 Loan Requirements 2022

    If you’re looking to make the lowest possible down payment on your home purchase, you have options. The Federal Housing Administration offers one of the best home loan solutions on the market for this scenario, if you don’t mind paying the lifetime mortgage insurance that comes with it.

    Boasting down payment requirements of only 3% (a whole . Conventional 97 loans are a strong contender for first-time home buyers because they have PMI that is removed once the LTV reaches 78% and are 5% cheaper than FHA mortgages.

    You might be surprised by how much money you could save if you can meet the stricter credit requirements!

    Conventional 97 Loan FAQ Knowledge Base


    Is there an income limit for conventional 97 loan?

    Risk factors that could have an impact on a homeowner’s ability to maintain their home, such as low documentation loans, interest-only loans, 40-year terms, and credit scores below 620, were eliminated by Fannie Mae. Income limits: This program has no income limits.

    How do you qualify for 3% Conventional?

    You typically need a credit score of at least 620, a two-year employment history, steady income, and a debt-to-income ratio (DTI) below 43% in order to be eligible for a 3-percent down conventional loan. There are also income restrictions if you apply for the HomeReady or Home Possible loan.

    What is conventional 97 loan program?

    Homebuyers can obtain a conventional mortgage loan through the Conventional 97 program with just 3% down. The program’s name refers to the 97% of the home’s value that the lender finances after the buyer puts down 3%.

    Can I use a conventional 97 loan for investment property?

    Property Types: Single-family homes that the buyer intends to use as their primary residence must be purchased with a Conventional 97 mortgage. No multi-unit buildings are permitted, and neither are investment or vacation properties.