Conventional 97% LTV Program 3% Down Payment

conventional 97 3 down mortgage

Conventional loans are great, but unless you have 10%-20% down, they aren’t an option.

Until now

The conventional 97 loan requires a down payment of just 3%, that’s even lower than an FHA loan.

So who qualifies? Which lenders offer 3% down mortgage loans?

We’re going to answer these questions and compare the Conventional 97 loan program to other types of loans in this article.

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What is the Conventional 97 Loan Program?

In an effort to increase the amount of mortgages offered in the U.S. Fannie Mae and Freddie Mac wanted a loan program that would could compete with FHA loans. Fannie and Freddie are Government spooned enterprises that are the primary buyer of mortgages in the country.

The number one hurdle first time home buyers have is coming up with the downpayment. With all the benefits of conventional loans and now requiring just a 3% down payment, the conventional 97 loan is perfect for first-time buyers.

Now conventional financing is a very viable option to buyers with less than a 5% downpayment of the purchase price, allowing them to compete with FHA loans and other Government loans.

Conventional 97 Guidelines

Many mortgage lenders offer the 3% down mortgage. The criteria to qualify is similar to a regular conventional loan. Many borrowers may be eligible for this program.

  • Debt-to-income of 41% or lower
  • $424,100 Maximum loan limit
  • Minimum credit score requirement of 620
  • One of the borrowers must not have owned a house in the past 36 months
  • Single Family Homes, PUD, condo, townhomes, CO-OP are eligible
  • Owner-Occupied buyers only, no real estate investors
  • Maximum LTV ratio of 97 percent

Comparing Conventional Loans vs. FHA Loans

For those who think their only option is an FHA loan with less than a 5% downpayment, the conventional 97 loan is another excellent option because of the low 3% down requirement.

Because of the low down payment requirement, this mortgage program is very attractive to first-time homebuyers. Plus, the Fannie Mae Loan Level Price Adjustment (LLPA) chart shows a borrower with a FICO score of just 620 can qualify.

So. What are the key benefits of each loan program?

FHA Pros

  • High debt-to-income ratio (as high as 51% – Conventional 3% cut off is approximately 42%)
  • A friend or family member can gift the down payment to the borrower.
  • Sellers can contribute up to 6% towards the buyers closing costs. Conventional 97 allows the seller to pay 3%.
  • Student loans that are in deferment will not be counted against a borrower’s DTI ratio.
  • FHA mortgage loans have lower interest rates.
  • Higher mortgage insurance premium
  • Flexible qualifying guidelines.
  • The minimum credit score required is 580.
  • FHA loans are assumable. Conventional loans are not.

Conventional 97 Pros

  • No front-end private mortgage insurance (PMI) is required.
  • PMI cancels automatically when the loan-to-value ratio reaches 78%, FHA MIP is required for the life of the loan.
  • Minimum down payment of just 3%, which is .5% lower than an FHA loan.
  • A friend or family member can gift the down payment to the borrower.
  • Higher maximum loan amounts
  • 620 FICO score requirement

Conventional 97 Rates

There is a slightly higher interest rate that comes with the conventional, typically no more than a quarter percent higher. However, the borrower will be saving more upfront costs with the lower down payment requirement.

The slight increase in the rate will equate to roughly $45 per month on a $200,000 mortgage.

Get today’s rates for the 3% down conventional mortgage

Other Low and No Down Payment Mortgage Programs

  • VA Loans – No downpayment
  • USDA Loans – No downpayment
  • Conventional 97 – 3% downpayment
  • FHA Loans – 3.5% downpayment
  • HomePath Loans – 3% downpayment

Non-Conforming Jumbo Loans

If you’re purchasing a property with a purchase price that exceeds the conventional loan limit, you will need a non-conforming jumbo loan. View the conventional 97 loan limits on the Fannie Mae website.

Jumbo loans are available up to 3 million dollars from some mortgage companies. Because the loan does not meet the criteria by Fannie Mae and Freddie Mac, it is a non-conforming loan and will have higher requirements to be eligible.

Conventional Mortgage Q&A

What is the minimum credit score needed for a conventional 97 mortgage?

The typical minimum credit score requirement is 620 for this program. However, many lenders recommend you have a score closer to at least a 680 score.

What’s cheaper, conventional, or FHA loans.

Conventional 97 loans are typically cheaper because the PMI will cancel at 78% LTV and the mortgage insurance is cheaper on conventional loans.

Is there a maximum purchase price for the program?

Yes. The maximum loan amount is $424,100; with 3% down, you could purchase a home as much as $436,216.

Can I buy multiple-unit homes?

No. Single-family units are only available with the program.

Can I use down payment gift funds?

Yes. Borrowers can have 100% of their down payment gifted from a friend or family member.

Am I able to use a conventional loan to buy a condo or townhome?

Yes. Borrowers can purchase a condo, townhouse, or Co-op if it is a 1 unit property.

Can I refinance my house using the 3% down conventional program?

Yes. You can refinance up to 97% of the value of your house if you have a Fannie Mae loan.

Why is the program only for first-time buyers?

Fannie Mae created the program to help first-time homebuyers purchase a home. Since the most significant barrier for first-time buyers is the large down payment typical mortgage require, they created the 3% down mortgage program to increase homeownership.

What is the maximum debt-to-income ratio?

The DTI requirements will vary depending on your credit score. The maximum DTI for the 3% down conventional program is 43%

How much is private mortgage insurance?

The amount of mortgage insurance will vary depending on your credit score. You will pay roughly $75-$125 per month per $100,000 borrowed.

Can I use this program to purchase an investment property?

Unfortunately not, the 97 LTV mortgage program is for owner-occupied borrowers only.

Get today’s rates for the 3% down conventional mortgage