Conventional 97% LTV Loan - 3% Down Payment Mortgage
Borrowers looking to buy a house, particularly their first home, typically need a loan program that offers as little down as possible.
The Conventional 97 loan, 3% down mortgage, specifically helps with just that.
Traditionally, Conventional loan down payments required 5% down or 95% LTV, but the Fannie Mae Conventional 97% LTV option reduces that requirement.
Conventional loan programs offer two 97% LTV options: Standard 97 LTV loan and the HomeReady 3% Down program.
Our article will highlight the benefits of both programs but also give some insight as to other programs that may be equally (or more) beneficial.
Conventional Mortgage Series:
Other Helpful Resources:
Standard 97 Conventional Fannie Mae Loan
The Standard 97 Conventional Loan is exclusively for first time home buyers.
- Definition of a “First-Time Buyer” is a borrower that has not had ownership of a residential property in the last 3 years (can’t be on title or the mortgage within the last 3 years).
Read more about first-time home buyer qualifications if you want to find out if you qualify.
Conventional 97 Loan Benefits
Standard 97 LTV Requirements
- Qualifying first-time buyer
- Purchasing your primary residence
- Down payment can be from a gift
- Debt-to-income ratio cannot exceed 50% of gross monthly income
- Minimum 620 credit score requirement
- Maximum loan to value at 97%
- Property must be a single-family home, townhome, or eligible condo
- Maximum loan amount of $484,350 for 2019
HomeReady 3% Down, 97 LTV
The HomeReady 97 LTV loan offers additional benefits over the Standard Conventional 97 Loan just mentioned.
This program is not exclusive to first-time buyers, but instead focuses more on low-to-moderate income families.
HomeReady 97 Loan Benefits
- Reduced Interest rates compared to Standard 97 Loan
- Reduced Mortgage Insurance
- DO NOT have to be a first-time buyer
HomeReady 3% Down Requirements
- Purchasing a primary residence
- Specific income limits capped at Area Median Income (AMI) in most areas or in low census-tract areas no income restrictions
- 97% LTV, 3% down
- Minimum 620 credit score
- Down payment can be from a gift
- First-time homebuyer counseling course required
- Maximum debt-to-income ratio of 50%
- Property must be a single-family home, townhome or eligible condo
- Max loan amount of $484,350 in 2019
Conventional 97 Loan vs FHA Loan
Our team at United Fidelity Funding wrote a comprehensive FHA vs Conventional loan comparison included with an infographic, so read that for additional insight. However, here are a few brief comparisons.
FHA Loan Benefits Compared to Conventional 97
- FHA offers lower rates, particularly for borrowers with credit scores under 700 credit
- Lower mortgage insurance premiums. Conventional Loan PMI is based on credit scores and how much you put down, whereas FHA’s is fixed based on your loan amount.
- FHA Loan Requirements are easier to qualify for and allow for higher debt-to-income ratios
- Lower minimum credit guidelines (580 in most cases)
- Sellers can contribute up to 6% of the purchase price towards closing costs (the Conventional 97 loan only allows the seller to contribute 3%)
- No income limits
- No first-time buyer course requirements
- Do not have to be a first-time buyer
Conventional 97 Loan Benefits Compared to FHA
- Lower down payment: 3% down required for Conventional 97 and 3.5% down for FHA
- No additional upfront mortgage insurance like FHA requires
- Cancellable mortgage insurance – PMI falls off once you get to 78% loan-to-value (approximately 9 years)
- Higher maximum loan amounts
The Conventional 97 LTV Loan and HomeReady 3% Down loan are great options for borrowers with excellent credit or looking to borrow more than the $314,000 FHA limit. Since Conventional loans are credit sensitive, borrowers with lower scores may be better suited financially looking at other options.
For a full comparison of home loan options, read our complete breakdown to get a better idea of which may be best for you.