What is the conventional 97 loan program?
The Conventional 97 program enables property buyers to get a standard mortgage loan with only 3% down.
The program is named for the 97% of the home value that is financed by the loan provider after the buyer makes a 3% deposit.
The loan program can fund a single-family home or apartment unit - as long as the buyer prepares to utilize the home as a primary house.
Conventional 97 provides an alternative to FHA loans, which need a similar 3.5% down payment.
In this post:
Conventional 97 loan guidelines
Credit history requirements
Conventional 97 mortgage rates
Conventional 97 vs FHA and other loan types
Conventional 97 loan FAQ
How to get a Traditional 97 Loan
2025 traditional 97 standards
Aside from needing just 3% down, Conventional 97 loans work a lot like other traditional mortgage loans.
But this loan program works only for novice home buyers - defined as buyers who have not owned a home in the previous three years. For debtors looking for a low deposit mortgage, it can be an excellent mortgage option.
Here are some other Conventional 97 loan credentials:
- The loan should be a fixed-rate mortgage
- The residential or commercial property must be a one-unit single-family home, co-op, PUD, or condominium
- A minimum of one purchaser needs to not have actually owned a home in the last 3 years
- The residential or commercial property must be the owner's main house
- A minimum of one debtor needs to take a homebuyer education course
- The loan amount need to be at or listed below $806,500
These features align well with the normal novice homebuyer's profile.
For example, many purchasers today are trying to find a one-unit home - instead of a duplex or triplex - or a condominium that they plan to reside in as their main home. First-time buyers are likewise likely to be seeking something with a lower purchase price.
Today's average home rate is around $350,000 according to the National Association of Realtors, putting a Traditional 97's average deposit at $10,500 - within reach for lots of home consumers.
By contrast, making a 20% deposit would need $70,000 upfront.
Check your eligibility for the conventional 97% LTV program. Start here (Aug 20th, 2025)
Conventional 97 credit requirements
Many property buyers presume they need impressive credit history to get approved for a loan that requires only 3% down. That's not the case.
According to Fannie Mae's Loan Level Price Adjustment (LLPA) chart, a customer can have a score as low as 620 and still receive 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 protect the lending institution in case you default.
This additional layer of security for the lender enables 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 open years of savings on interest for new house owners.
Yes, personal mortgage insurance would make the 3% down choice more pricey on a month-to-month basis, in the beginning.
But the customer's deposit requirement is substantially lower, enabling them to buy a home much earlier - before home prices increase again.
And keep in mind, you can cancel PMI when the loan's balance reaches 80% of the home's value. Lenders call this portion your loan-to-value ratio, or LTV.
When LTV is up to 78% of the residential or commercial property's worth, PMI immediately drops off.
Conventional 97 rates of interest
Mortgage rates for the 3% deposit program are based on standard Fannie Mae rates, plus a slight rate boost.
However, this cost or rate boost is frequently minimal compared to the worth included from earlier home buying.
Someone purchasing a $300,000 home would pay about $80 more each month by picking the 97% loan alternative compared to a 5% down loan.
Yet, the buyer reduces their overall in advance home buying expenses by over $5,000.
The time it takes to save an additional 2% down payment might suggest higher realty costs and harder certifying down the road. For numerous purchasers, it might prove more affordable and quicker to select the 3% down mortgage immediately.
Low deposit alternatives to Conventional 97 loans
Conventional 97 loans vs FHA loans
Before Fannie Mae introduced 3% deposit traditional loans, more home buyers who required a low deposit loan selected an FHA loan.
FHA loans are still the very best option for a great deal of purchasers. The Federal Housing Administration, which insures these loans, requires 3.5% down for the majority of brand-new home purchasers, putting an FHA down payment in the area of a Conventional 97's.
But unlike traditional loans, FHA loans allow credit report listed 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 - simply barely great enough to get approved for a Traditional 97 - you might draw a better-rate loan from the FHA.
The catch is the FHA's mortgage insurance coverage. Unlike PMI on a traditional mortgage, FHA mortgage insurance premiums (MIP) won't disappear unless you put 10% or more down. You'll keep paying the yearly premiums till you settle the loan or re-finance.
The FHA likewise charges an upfront mortgage insurance coverage premium. This one-time, in advance fee amounts to 1.75% of the loan quantity for the majority of customers.
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 brand-new mortgage without any money down.
Unlike FHA and conventional loans, USDA and VA loans won't work for simply any customer.
VA loans go to military members or veterans. They're a perk for individuals who have served. And they're an appealing perk. Together with putting no money down, VA borrowers will not pay yearly mortgage insurance - simply an upfront financing fee.
Zero-down USDA loans operate in rural and suburbs and only for borrowers who earn less than 115% of their location's average income. They likewise need a higher credit rating - usually 640 or higher.
Conventional 97 vs other low down payment standard loans
Fannie Mae and Freddie Mac use more than one low deposit loan. So far 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 developed for moderate-income debtors. If you earn less than 80% of your area's typical income, you might certify for HomeReady. What's so excellent about HomeReady? In addition to low down payments, this loan offers reduced PMI rates which can reduce your month-to-month payments
Freddie Mac's Home Possible: This 3% down loan works a lot like HomeReady. It adds the ability to utilize sweat equity toward the down payment. This can get made complex, and you 'd need the seller's approval ahead of time. But it is possible.
Freddie Mac HomeOne: This 3% down loan looks like the basic Conventional 97 from Fannie Mae. Unlike HomeReady and Home Possible, there are no income restricts to stress about.
Your loan officer can help determine 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 Standard 97 is a conventional mortgage that requires just 3% down. It's named for the staying 97% of the home's worth that the mortgage will fund.
How do you get approved for Conventional 97?
Qualifying for a Conventional 97 loan requires a credit report of at least 620 in many cases. Debt-to-income ratio (DTI) ought to likewise fall listed below 43%. There are no income limitations. Borrowers who already own a home or who have owned a home in the past 3 years won't certify.
Do all loan providers use Conventional 97?
Most lending institutions offer Conventional 97 loans. This item complies with Fannie Mae's rules. Lenders that use Fannie Mae loans will likely offer this 3% down product.
Can closing expenses be consisted of in a traditional 97 loan?
No. As its name shows, the Conventional 97 program can finance approximately 97% of a home's assessed worth. Rolling closing expenses into the loan amount would push the loan beyond this 97% limit. However, numerous novice property buyers certify for down payment and closing cost support grants and loans. Conventional 97 also enables gift funds. This implies relative or buddies could assist you cover closing costs.
Who uses Conventional 97 loans?
Most personal mortgage lenders - whether they're online, downtown, or in your area - offer Fannie Mae traditional loans which include Conventional 97 loans.
Is there a minimum credit history for the 3% down payment program?
Borrowers require a credit rating of at least 620 to get any Fannie Mae-backed loan. The exception would be those with non-traditional credit who have no credit rating. Mortgage lenders can set their minimum credit ratings higher than 620. Some may need 640 or 660, for example. Make certain to talk to your mortgage loan provider to discover out for sure.
Can I use deposit gift funds?
Yes. Fannie Mae states gift funds might be utilized for the down payment and closing costs. Fannie does not set a minimum out-of-pocket requirement for the purchaser. You may likewise certify for deposit assistance. Your mortgage officer can help you find programs in your state.
Can I purchase an apartment or townhouse?
Yes. Buyers can acquire an apartment, townhome, house, or co-op utilizing the Conventional 97 program as long as it is only one system.
Can I buy a manufactured home with 3% down?
No. Manufactured homes are not enabled with this program.
Can I purchase a 2nd home or investment residential or commercial property?
No. The 97% loan program may be used only for the purchase of a main home.
I owned a home 2 years ago however have been renting given that. Will I qualify?
Not yet. You must wait up until three years have actually passed given that you had any ownership in a house. At that point, you are considered a novice home purchaser and will be eligible to make an application for a Conventional 97 loan.
Will mortgage insurer offer PMI for the 97% LTV mortgage?
Yes. Mortgage insurance companies are on board with the program. You do not need to find a PMI company considering that your lender will order mortgage insurance for you.
How much is mortgage insurance coverage?
Mortgage insurance varies commonly based on credit history, from $75 to $125 per $100,000 obtained, each month.
Can I get a conforming jumbo loan with 3% down?
No. This program won't let lending institutions exceed conforming loan limits. At this time, high balance, also called adhering jumbo loans - those over $806,500 - are not qualified.
I'm currently approved putting 5% down, but I 'd like to make a 3% deposit instead. Can I do that?
Yes. Even if you have actually already been through the underwriting procedure, your loan provider can re-underwrite your loan if it provides the Conventional 97 program. Bear in mind your debt-to-income ratio will rise with the greater loan amount and potentially higher 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 report determines your DTI maximum. While there's no absolute number, a lot of lenders set an optimum DTI at 43%. This indicates that your future principal, interest, tax, insurance coverage, and HOA dues plus all other month-to-month financial obligation payments (trainee loans, credit card minimum payments) can be no more 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 re-finance approximately 97% of the current value. Refinancing may allow debtors to decrease their regular monthly payments or remove mortgage insurance coverage premiums.
Click on this link for additional information about the 97% LTV re-finance program.
Why is the program just for first-time home buyers?
Fannie Mae's research revealed that the greatest barrier to homeownership for newbie homebuyers was the deposit requirement. To spur more individuals to buy their very first home, the minimum deposit was lowered.
Exist income limitations?
The standard 3% down program does not set limitations on your earnings. However, the HomeReady 97% loan does require the borrower to be at or below 80% of the area's typical income.
What is a HomeReady mortgage?
HomeReady is another program that requires 3% down. It has flexibilities integrated, such as utilizing income from non-borrowing family members to qualify.
To see if you receive the HomeReady program, see the complete guidelines here.
What is the Home Possible Advantage program?
HomeReady is another program that requires 3% down. HomeReady loans have versatilities integrated, such as utilizing income from non-borrowing family members to qualify.
How to get a conventional 97 loan
The Conventional 97 mortgage program is offered immediately from lending institutions across the nation. Talk with your lenders about the loan requirements today.
