What is a Conventional 97 Loan and How Does it Work?

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

First time home buyer graphicAs a first time homebuyer, I was overwhelmed with the number of loan programs available for my purchase.
The Conventional 97 Loan stood out to me as the most advantageous option due to its low down payment requirement and competitive interest rates.

The primary benefit of the Conventional 97 Loan is that it allows qualified borrowers put down just 3% in order to reach 20% equity when buying their new home. Without this option, many potential home owners would be unable to come up with a large enough down payment in order to meet other conventional loan requirements. In addition, this particular loan program offers attractive rates and reduced mortgage insurance costs compared to other conventional loans.

Advantages of a Fixed Interest Rate for Conventional 97 Loans

Low down payment home buyers with conventional 97 mortgages can access low fixed-rate loans. Since it only needs a 3% down payment and has a low-interest rate, it is one of the most straightforward and well-liked mortgages available.
See today's interest rates

Eligible Property Types for Conventional 97 Loans

The Conventional 97 loan permits the following property types:

  • co-op,
  • single-family home,
  • condo (approved),
  • PUD (planned unit development), or
  • one unit manufactured homes (A down payment of at least 5% is required)

Conventional 97 Loan for First-Time Homebuyers

Nice houseConventional 97 home loans are only available to “first-time” home buyers and borrowers who have not owned a home during the previous three years.

Fannie Mae limits these loans to “first-time” home buyers. If there are numerous borrowers signing on the mortgage, just one of them needs to be a first-time home buyer for the mortgage to be considered for approval.

Occupancy Requirements for Conventional 97 Loans

The property must be owner occupied and cannot be an investment property. The eligible property types include single-unit family homes, cooperative housing, condominiums, and planned unit developments.

Loan Limits for Conventional 97 Loans

The most money that may be borrowed to buy a house is known as the conventional 97 loan limit. The government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, which buy loans from lenders, determine the lending cap. The cap for Conventional 97 loans for 2023 is $726,200. The most that may be borrowed in order to buy a house inside the contiguous United States is this amount. In certain high-cost regions, including Hawaii and Alaska, the loan maximum is greater.
See Conforming loan limits

Understanding PMI for Conventional 97 Loans

When you obtain a Conventional 97 loan, you will be required to pay private mortgage insurance (PMI) until you have reached 78 percent equity in the property. Your monthly mortgage payment includes the PMI premium, which is determined as a percentage of the total loan amount. After you have reached 22% equity, your mortgage insurance will be removed automatically.
Read more about private mortgage insurance

Credit Score Requirements for Conventional 97 Loans

Fannie Mae states that applicants with a credit score as low as 620 may qualify for a Conventional 97 loan with a down payment of at least 3% of the total loan amount. However, to access all benefits of the loan, they recommend a credit score of 680 or higher.

Income Limits for Conventional 97 Loans

Conventional 97 loans do not have any restrictions on the maximum borrower income.

Using Gift Funds for a Down Payment on Conventional 97 Loans

Gift box full of money to buy a houseThe down payment as well as the closing expenses can be paid with gift funds.

There is no predetermined minimum amount that the borrower must contribute from their own finances toward the purchase.
Read more about gift funds for down payment and closing costs

Seller Concession Guidelines for Conventional 97 Loans

For loans with a 3% to 9% down payment, the home seller is allowed to pay up to 3% of the sales price to the home buyer's closing costs.

With a down payment of 10% to 25%, the seller can pay up to 6% of the sales price toward the buyer's closing and prepaid costs.

Seller concessions must be clearly stated in the sales contract.
Read more about seller concessions

Homebuyer Education Requirements for Conventional 97 Loans

When all the occupied borrowers are first-time homebuyers, a homeownership education course will be required of at least one of the borrowers. The usage of Fannie Mae HomeViewTM is an option for satisfying this prerequisite.

Debt-to-Income Ratio Guidelines for Conventional 97 Loans

When applying for a Conventional 97 loan, the maximum debt to income ratio is 43%. This means that your total monthly debt payments cannot exceed 43% of your gross monthly income. This includes mortgage, credit card, car loan, and student loan payments. If you have a lot of debt, you may need to find a way to reduce your monthly payments before you apply for a Conventional 97 loan.
Read more about debt to income ratios

Qualifying for a Conventional 97 Loan with a Cosigner

New home buyer receiving the keys to their homeNon-occupant borrowers are credit applicants on a principal residence transaction who do not occupy the subject property. They may or may not have an ownership interest in the subject property as indicated on the title. They sign the mortgage or deed of trust note and have joint liability for the note with the borrower.
See Fannie Mae Selling Guide for more information

Conventional 97 Refinance Option

Loans to be refinanced must currently be owned by Fannie Mae.
Loan lookup site.

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

Rotating question markFAQ About Conventional 97 Loans

Q: What is a conventional 97 loan?
A: A conventional 97 loan is a type of mortgage that allows a borrower to put just 3% down. It's a type of conventional loan and it's offered by Fannie Mae.

Q: What are the benefits of a conventional 97 loan?
A: A conventional 97 loan allows borrowers to put just 3% down, which can make it easier for first-time homebuyers to get into a home. Additionally, there is no mortgage insurance requirement, which can help save money over the life of the loan.

Q: What are the credit score requirements for a conventional 97 loan?
A: The minimum credit score for a conventional 97 loan is 620. However, a higher credit score can help you qualify for better terms and a lower interest rate.

Q: How much money do I need for a down payment on a conventional 97 loan?
A: A conventional 97 loan requires a down payment of just 3%.

Q: What are the income limits for a conventional 97 loan?
A: There are no specific income limits for a conventional 97 loan, but borrowers will need to meet the income requirements set by Fannie Mae.

Q: What are the debt-to-income ratio requirements for a conventional 97 loan?
A: The maximum debt-to-income ratio for a conventional 97 loan is typically 45%.

Q: Can I use gift funds for my down payment on a conventional 97 loan?
A: Yes, gift funds can be used for the down payment on a conventional 97 loan, as long as the funds are properly documented and the donor is related to the borrower.

Q: Are there any restrictions on property types for a conventional 97 loan?
A: The property must be a single-family home, a 2-4 unit property, or a approved condominium or PUD.

Q: What type of mortgage insurance is required for a conventional 97 loan?
A: There is no mortgage insurance requirement for a conventional 97 loan.

Q: Are there any special requirements for first-time homebuyers to qualify for a conventional 97 loan?
A: No, there are no special requirements for first-time homebuyers to qualify for a conventional 97 loan. However, first-time homebuyers may be eligible for down payment assistance programs through state or local government agencies.

Summary

The Conventional 97 Loan is a type of mortgage that allows first-time home buyers to put down just 3% to reach 20% equity when buying a new home. This loan program has attractive interest rates and reduced mortgage insurance costs compared to conventional loans.

Eligible property types include single-unit family homes, cooperative housing, condominiums, and planned unit developments. The loan limit for Conventional 97 Loans for 2023 is $726,200, and the property must be owner-occupied and cannot be an investment property.

Borrowers will be required to pay private mortgage insurance (PMI) until they reach 78% equity in the property. The minimum credit score recommended by Fannie Mae is 680, and there are no income limits for Conventional 97 Loans. The down payment and closing expenses can also be paid with gift funds.

SOURCE:
97% Loan to Value Options
Faqs: 97% Ltv Options

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