2 Options: Conventional 97 and HomeReady
The Conventional 97 is a low down payment mortgage program which allows first-time home buyers and repeat buyers to make down payments of just 3%. The Conventional 97 can be used for primary residences where the mortgage loan size does not exceed the national conforming loan limit of $417,000.
The “3% Down Mortgage” From Fannie Mae
For buyers looking for a low-down payment mortgage option that’s not backed by the FHA, Fannie Mae has two options — the HomeReady™ mortgage and the Conventional 97.
HomeReady™ is limited to certain low-income census tracts; and areas with high minority concentrations. By contrast, Conventional 97 is available for use everywhere.
The Conventional 97 program is meant to help home buyers who might other qualify for a loan but lack the resources — or the desire — to make a five percent down payment or more.
The 97% LTV Mortgage And Other Low-Down Payment And No-Down Payment Mortgage Options
With the introduction of the Conventional 97 home loan, the U.S. government is making it easier for potential buyers to become homeowners.
Fannie Mae and Freddie Mac join the FHA, VA, and USDA in offering low-downpayment loans to buyers nationwide.
The Conventional 97’s aggressive terms have helped it to grab market share from the FHA loan, which is another low-down payment option available in today’s market.
The FHA loan has its place, though.
FHA loans require down payments of 3.5% and home buyers with less-than-perfect credit may find FHA loans to be more cost-effective than the Conventional 97. Especially because FHA mortgage rates are lower than rates for a comparable conventional loan.
Borrowers with better-than-average credit scores, though, typically save by using the Conventional 97.
VA loans are another popular comparison product for the Conventional 97.
Available to veterans and active members of the military, VA loans allow for 100% financing and never require borrowers to pay mortgage insurance.
VA mortgage rates are lower than rates for a comparable conventional loan and VA loans are backed by the Department of Veterans Affairs.
USDA loans are a third comparison option.
USDA loans are guaranteed by the U.S. Department of Agriculture and, although they’re sometimes called “Rural Housing Loans”, USDA loans can be used in many suburban locations, too.
USDA loans offer very low rates and allow for 100% financing. They also require just a small mortgage insurance premium as compared to other low- and no-down payment loans.
Today’s home buyer has plenty of financing options.
Conventional 97 Mortgage Eligibility FAQ
Is the Conventional 97 loan the same program as HomeReady™?
No, the Conventional 97 is available to everyone. HomeReady™ is only available in low-income census tracts, to low-income borrowers, in areas of high minority concentration, and in regions declared a disaster area.
Can first-time buyers use the Conventional 97 program to purchase a home?
Yes. The 97 percent program can be used by first-time buyers. It can also be used by repeat buyers.
What is the definition of a “first-time home buyer”?
A first-time home buyer is defined as a person who has not owned a home in the last three years. If you previously owned a home, but have not owned a home since three years ago, you are considered to be a “first-time home buyer”.
Is the Conventional 97 the same as the MyCommunityMortgage® program?
No, MyCommunityMortgage® is a different program. That program is aimed at certain members of the community including teachers, police and firefighters; and which may offer more flexible underwriting standards than a traditional mortgage program.
Are down payments larger than 3% allowed with the 97% LTV program?
Yes, there is no limit to the size of your downpayment with the Conventional 97. With a downpayment of five percent or more, though, you will no longer be using the Conventional 97.
Is the low-down payment mortgage program via Fannie Mae and Freddie Mac better than a FHA loan?
There is no “best” low-down payment mortgage program. What’s best for one home buyer may not be what’s best for another. Each program is unique just like you and has its benefits.
What mortgage products are available via the Conventional 97 mortgage program?
The Conventional 97 mortgage program allows mortgage applicants to use the 30-year fixed rate mortgage only. 15-year and 20-year fixed rate mortgages are not available.
Can I use an adjustable-rate mortgage (ARM) with the Conventional 97?
No, the Conventional 97 allows mortgage applicants to use 30-year fixed rate mortgages only.
What is the loan limit on the 3% down program through Fannie Mae and Freddie Mac?
The 3% downpayment program is limited to loan sizes of $417,000 or less. Loans in high-cost areas are permitted, but loan sizes remain capped at local conforming loan limits.
What is the maximum number of units for a home under the 3% down payment program?
The 3 percent down payment program is for single unit homes only. This includes single-family detached homes and single-family attached homes such as condominiums and town homes. 2-unit homes, 3-unit homes, and 4-unit homes cannot be financed via the program.
Are vacation homes eligible under the Conventional 97?
No, the 3% downpayment program is for primary residences only. Vacation and second homes are not allowed.
Can Conventional 97 be used for investment properties?
No, the 3 percent down payment program is for primary homes only. Investment properties are not allowed.
Does the Conventional 97 mortgage program require home buyers to attend home-buyer counseling?
No, there is no home-buyer counseling requirement with the Conventional 97 mortgage program.
Is private mortgage insurance required with the Conventional 97?
Yes, mortgage applicants are required to pay private mortgage insurance (PMI) as part of the Conventional 97. Your lender will arrange for your mortgage insurance policy at the time of application.
Can I refinance a non-Fannie Mae loan with Fannie Mae under the 97% LTV program?
No, Fannie Mae requires loans refinanced under the 97% program to be Fannie Mae-backed.
How do I determine whether my loan is a Fannie Mae-backed loan?
To determine whether your loan is backed by Fannie Mae, you can ask your lender or use Fannie Mae’s loan lookup tool.
Are cash-out refinances allowed with the 97% mortgage program?
No, the 97% mortgage program does not allow cash-out refinances. Borrowers may do a rate and term refinance or a “limited cash-out” refinance only.