Conventional 97 Loan Program

conventional 97 3 down mortgage

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

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 a conventional 97 loan?

To compete with low down payment mortgage programs like FHA, which are geared towards first-time homebuyers. Fannie Mae and Freddie Mac created loan the 3% down HomeReady and Home Possible loan programs.

The number one hurdle first-time homebuyers face is coming up with the large down payment that is required for a conventional loan, which can be as high as 20%. With all the benefits of conventional loans and now requiring just a 3% down payment, the conventional 97 loans are perfect for first-time buyers.

Types of Conventional 97 Loans

Fannie Mae HomeReady Loan

To be able to compete with FHA loans, which require just a 3.5% down. Fannie Mae created the HomeReady loan program for low-income first-time homebuyers, which just a 3% down payment is needed.

HomeReady loans are strictly for low-to-median income home buyers. In order to qualify, your annual income cannot exceed 80% of the area median income (AMI).

HomeReady Loan Requirements

  • 620 credit score
  • 3% down payment
  • 50% maximum debt-to-income ratio
  • Income limit is 80% of area median income
  • Available for primary residence only
  • Two years of stable employment
  • W2’s, tax returns, bank statements, pay stubs

Freddie Mac Home Possible Loan

Freddie Mac also has their own 3% down home loan specifically for low-income first-time homebuyers called the Home Possible loan program.

As with HomeReady loans, there is an income limit of 80% of the median income in the area, and a minimum 640 credit score is needed to qualify.

Home Possible Benefits

  • Low 3% down payment
  • Use alternate income sources
  • Fixed monthly mortgage payments
  • Low mortgage rate
  • Low PMI rates
  • Fixed-rate mortgage
  • PMI is canceled at 80% LTV

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.

  • Maximum 43% Debt-to-income ratio
  • $510,400 Maximum loan limit
  • Minimum 640 credit score
  • 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

Conventional 97 vs. FHA

When comparing FHA loans to conventional 97 mortgage loans the similarities stop at the low downpayment.

Income – FHA loans do not have income limits like conventional 97 home loans do, which makes FHA the only option for a low down payment for borrowers who make more than the conventional 97 income limits.

Credit – Conventional 97 loans require just a 620 credit score, which is less than other conventional home loan programs. But it can’t touch the low credit score requirements of FHA home loans. For an FHA mortgage, you just need a 500 credit score with 10% down, or a 580 credit score with 3.5% down.

Mortgage insurance – FHA-insured loans have two types of mortgage insurance premiums, an upfront MIP fee of 1.75% of the loan amount plus annual MIP, which will be included in your mortgage payment. Conventional 97 loans do require private mortgage insurance (PMI), which is included in your monthly payment but do not have an upfront mortgage insurance fee.

Conventional 97 vs. FHA Comparision

FHA Loan

HomeReady & Home Possible Loan

Down Payment

580 with 3.5% down
500 with 10% down


Minimum Credit Score



Income Limits

No income limit

80% of area median income
Varies by county

Mortgage Insurance

Up-front MIP payment
Monthly MIP payments

* >10% down MIP cancels in 11 yrs
* <10% down MIP required for the life of the loan

Monthly PMI payments

* PMI is canceled when LTV ratio reaches 78%

Income Sources

Only applicant's income can be used

Can use income from parents, renters, or anyone else living in the home

Maximum LTV Limits


97% LTV, 105% TLTV with Affordable Seconds®, and 97% HTLTV for 1-unit properties.

Homebuyer Education

Not required

4-6 hours of homeownership education courses
Cost: $75

What are the key benefits of each loan?

FHA Pros

  • 500 credit score with 10% down, 580 credit score with 3.5% down
  • Debt-to-income ratio up to 50%
  • Downpayment can be a gift
  • Sellers can contribute up to 6% towards the buyers closing costs
  • Student loans in deferment not counted against DTI ratio
  • Low interest rates
  • Flexible qualifying guidelines.
  • Loan is assumable

Conventional 97 Pros

  • No upfront private mortgage insurance (PMI) required.
  • PMI cancels when the LTV ratio reaches 78%
  • Low 3% down payment
  • Down payment can be a gift
  • Higher loan limits

Conventional 97 Loan 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.

Other Low and No Down Payment Mortgage Programs

  • VA Loan – Zero down
  • USDA Loan- Zero down
  • FHA Loan – 3.5% down payment

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 loan?

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 mortgage insurance rates are lower.

Is there a maximum purchase price for the program?

Yes. The maximum amount you can borrow is the loan limit of $510,400.

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 can I only qualify if I’m a first-time homebuyer?

Fannie Mae and Freddie Mac created the low down payment home loan programs to help first-time homebuyers purchase a home. Since the most significant barrier for first-time buyers is the down payment, they created the 3% down program to increase the number of loans issued to first-time buyers.

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 mortgage program is 50%

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