What to Know About Conventional 97 Loans

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Conventional 97 loans are offered by Fannie Mae and Freddie Mac to help buyers who have been trying to save for a down payment but don’t have a lot of cash reserves.

As the name implies, a Conventional 97 home loan only requires 3% down, leaving a borrower to finance 97% of the loan-to-value (LTV). Your down payment can come from savings, cash on hand, gifts, grants, employer assistance, and other financing programs.

First-time buyers may also be eligible for home buyer tax credits and local down payment assistance, depending on where they live. Also, the Conventional 97 is available from every mortgage lender that offers conventional mortgage financing.

A Conventional 97 loan is similar to an FHA mortgage and is available in all 50 states to homebuyers of all income levels.

Here’s a closer look at what a Conventional 97 home loan is, who qualifies, and how it compares to other programs.

Conventional 97 Requirements

You must be a first-time homebuyer

At least one person on the mortgage application must be a first-time buyer, defined as a person who has not owned a percentage of any residential property in the last 36 months.

You must have a credit score of at least 620

Fannie Mae and Freddie Mac use the FICO credit scoring system, which ignores some kinds of debt, including medical bills and collection activities.

You must move into the home you buy

Conventional 97 loans apply only to primary residences. You can’t get this type of loan for an investment rental property or a second home.

Only 1-unit residential properties are eligible

Only single-family residences, including townhomes and condos, are eligible. Depending on the loan, a manufactured home may be eligible, but you’ll need to check with your lender to see if that’s the case.

Conventional mortgage guidelines apply

This is a conforming mortgage program, so you’ll need to meet conforming standards, including loan limits, which can vary depending on where you want to buy a home.

Attend a homeownership education class

Fannie Mae requires first-time homebuyers to complete a homeownership education course as part of the loan process to reduce mortgage default risk.

Types of Conventional 97 Loans

There are several types of Conventional 97 loans available for those who qualify. Conventional 97 loans are sometimes referred to as Fannie Mae 97 LTV Standard loans.

Both are the same thing and are for first-time buyers with no income restrictions and a minimum 620 credit score.

This loan is only one of several government-backed low down payment mortgage loans. In some cases, other options may be a better choice.

For example, Conventional 97 is not a home affordability mortgage like HomeReady and Home Possible. It also doesn’t discount mortgage rates or offer reduced mortgage insurance rates.

Home Ready

This is a 3% down payment mortgage from Fannie Mae for low and moderate income buyers. In addition to low credit score requirements of 620, reduced mortgage interest rates and mortgage insurance costs.

Home Possible

This is a 3% down payment mortgage program from Freddie Mac. It is similar to HomeReady but has a 660 minimum credit requirement. Income limits apply unless you’re buying a home in an underserved area.

Home One

This Freddie Mac program offers a 3% down mortgage loan with no income limits. It applies only to fixed-interest rate loans for single-unit, owner-occupied residences.

Other Similar Loan Options

FHA Mortgage

You can put down as little as a 3.5% down payment for a mortgage backed by the Federal Housing Administration. There are no income limitations, and you can buy multi-unit homes.

FHA-insured loans come with mortgage insurance premiums, including an upfront fee and a monthly FHA mortgage insurance premium. Conventional 97 mortgages have monthly or annual mortgage insurance options that may vary depending on the lender.

Conventional 97 mortgages are harder to qualify for than FHA loans. FHA loan guidelines state FICO scores of 580 or higher qualify for the lowest down payment, while Conventional 97 loans require at least a 620 or 660 credit score. 

USDA Mortgage

This is a 100% mortgage backed by the U.S. Department of Agriculture. It provides subsidized mortgage rates and insurance premiums to buyers in low-density parts of the United States. 

VA Mortgage

The VA offers a 100% mortgage to active-duty military members, veterans, and surviving spouses backed by the Department of Veterans Affairs.

Compare Before You Decide

If you’re shopping for a low downpayment loan with favorable terms, start by seeing if you qualify for a Conventional 97 home loan, but you should also compare it to other loan options. When you work with a lender, ask for a side-by-side comparison with some of the different loans mentioned above.

That will ensure you get the terms that best suit your circumstances.

Dan Rafter

Dan Rafter has covered real estate, mortgage and personal-finance news for more than 15 years, writing for the Chicago Tribune, Washington Post, Consumers Digest and many others. A graduate of the University Illinois with a degree in journalism, he is editor of Midwest Real Estate News magazine and blogs on commercial real estate for that publication at rejblog.com, in addition to being a contributor for Refi.com.

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