The Conventional 97 loan allows you to buy a home with 3% down rather than the typical 5-20% down without FHA’s permanent mortgage insurance.
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The Conventional 97 loan is a conventional loan program offered by Fannie Mae and Freddie Mac. A common myth is that conventional loans require 20% down, but heres a program that allows just 3% down. This option could be perfect for well-qualified homebuyers who lack a large down payment and would rather avoid FHAs permanent mortgage insurance.
This conventional 3% down option is the best of many worlds: a low down payment, cancelable mortgage insurance, and a way to make a stronger offer in competitive housing markets.
The biggest advantage of Conventional 97 loans is the ability to use conventional financing with just 3% down. Many buyers seek conventional financing not only due to its cancelable private mortgage insurance (PMI), but it also gives buyer offers a more competitive edge over FHA financing. Here are other pros of conventional 3% down loans:
Not everyone will qualify for a 3% down conventional loan. Typically, those with strong credit, employment, and income profiles have a better chance of qualifying and receiving competitive rates and PMI fees.
Putting down 20% for a home can be difficult especially for first-time homebuyers. That’s why conventional 3% down mortgages exist – to make homeownership more accessible.
In this comprehensive guide, we’ll explain everything you need to know about qualifying for a conventional mortgage with just 3% down.
What Is a Conventional 3% Down Mortgage?
A conventional 3% down mortgage, also called a 97% LTV mortgage, allows you to purchase a home with just 3% down payment. The remaining 97% is financed by the mortgage lender.
This low down payment option is intended to help creditworthy borrowers, especially first-time homebuyers, buy sooner without having to save a large down payment
Conventional 97% LTV mortgages are backed by Fannie Mae and Freddie Mac. They offer more flexible underwriting than FHA loans but require better credit.
Conventional 97% LTV Mortgage Programs
There are a few different conventional 97% mortgage programs available
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Conventional 97: Offered by Fannie Mae, this program requires at least one borrower to be a first-time homebuyer. There are no income limits.
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Fannie Mae HomeReady: Allows repeat buyers and has flexible underwriting. But there are income limits based on the area median income.
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Freddie Mac Home Possible: Also has income limits. Unique feature – allows non-occupying co-borrowers to contribute 3% down payment.
All of these programs require private mortgage insurance (PMI) since the down payment is less than 20%. But PMI can be removed once you build 20% home equity.
Conventional 97% Mortgage Requirements
To qualify for a conventional 97% mortgage, you must meet certain eligibility requirements:
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Credit score: Minimum 620 credit score. The higher your score, the better your interest rate.
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Down payment: At least 3% down from your own funds, gifts, grants, or down payment assistance programs.
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First-time homebuyer: At least one borrower must be a first-time buyer or not owned a home in 3 years.
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Debt-to-income ratio: Your total debt payments, including the future mortgage, cannot exceed 43% of your gross monthly income.
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Homebuyer education: Required if all borrowers are first-time buyers. Easily completed online.
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Loan limits: The mortgage cannot exceed conforming loan limits – typically $647,200 for single family homes.
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Owner occupancy: You must occupy the property as your primary residence. Not for investment properties.
As long as you meet the above criteria, you can qualify for a conventional 97% LTV mortgage and buy a home with as little as 3% down!
Pros and Cons of a Conventional 3% Down Mortgage
Pros
- Lower down payment is easier to afford
- Leaves more savings available for other costs
- Allows first-time buyers to purchase sooner
- May qualify for better rates than FHA loans
Cons
- Must pay private mortgage insurance (PMI)
- Higher monthly mortgage payments
- Less equity built initially
- May pay more interest over loan term
While PMI increases your payment, for some buyers it’s worth it to buy sooner. And you can request PMI cancellation once you build 20% equity.
How to Find Conventional 3% Down Mortgages
Many lenders offer conventional 97% LTV mortgages, including:
- Banks
- Credit unions
- Online lenders
- Mortgage brokers
Shop around and compare mortgage rates and fees. Look for lenders familiar with down payment assistance programs that may further lower your costs.
Getting pre-qualified will show you eligible loan amounts and programs. Then you can home shop knowing your budget and mortgage options.
Alternative Low Down Payment Mortgage Programs
If you don’t qualify for a conventional 97% LTV mortgage, alternative options include:
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FHA loans – Require just 3.5% down and allow credit scores as low as 580. But you pay mortgage insurance for the life of the loan.
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VA loans – Offer 0% down for veterans and active duty military. But you must pay a funding fee.
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USDA loans – Also 0% down for low-income borrowers in eligible rural areas. Guarantee fees apply.
3% Conventional Loan Options
Conventional 97 loans come in a few varieties, each helping different types of homebuyers.
Loan Program | Highlight |
---|---|
Fannie Mae 97 | No income limits; for first-time buyers only. |
Fannie Mae HomeReady | Use roommate income to qualify. Borrowers must make 80% or less of their median income. |
Freddie Mac Home Possible | Those who meet income limits qualify for reduced mortgage insurance. |
Freddie Mac HomeOne | No income limits. |
Which is Better: Conventional 97 or FHA?
Conventional 97 | FHA | |
---|---|---|
Down Payment | 3% | 3.5% |
Credit Score | 620 | 580 |
Upfront Mortgage Insurance | None | 1.75% |
Annual Mortgage Insurance | Cancelable. Cost depends on credit score, typically 0.5%-2% of the loan amount (paid monthly) | Permanent. Typically 0.55% per year for most borrowers |
Units | 1-unit primary residence | 1-4 unit primary residence |
Mortgage Rates | Usually higher than FHA | Typically lower than conventional |
Income Limits | 80% of area median income (some types) | None |
DTI | 45% | 50-55% |
Loan Limit | $806,500 | $524,225 (Up to $1.2M in some areas) |
First-time Buyer | Required for some programs | No |
How to Buy a Home with 3% Down Payment | You Don’t Need 20% Down!
FAQ
What are the requirements for a 3% conventional loan?
To qualify for a 3% down mortgage program, you’ll typically need a credit score of at least 620, a stable income, and a debt-to-income ratio of less than 43%. Some programs require you to be a first-time buyer, while others have specific income requirements based on the real estate market you’re buying in.
Is it a good idea to put 3% down on a house?
With a lower upfront payment, a 3% down mortgage can help you achieve homeownership sooner, but your monthly payments and interest costs will likely be higher …Apr 22, 2025
What disqualifies you from a conventional loan?
The more debt a borrower holds, the higher risk they represent to the lender, and those who pay 50% or more of their income towards debt may be considered too …Mar 21, 2023
Do conventional loans require 20% down?
While a 20% down payment is often recommended, it’s not always required. A lender will look at the big picture when evaluating your mortgage application. Depending on your specific situation, you can put down as little as 3% when taking out a conventional mortgage.
Who qualifies for a 3% down conventional loan?
Not everyone will qualify for a 3% down conventional loan. Typically, those with strong credit, employment, and income profiles have a better chance of qualifying and receiving competitive rates and PMI fees. Neither Conventional 97 nor FHA are “better” for everyone. Each has its merits. In general:
What is a conventional 3% down payment?
This conventional 3% down option is the best of many worlds: a low down payment, cancelable mortgage insurance, and a way to make a stronger offer in competitive housing markets. See if you qualify for a conventional loan. Start here. See if you qualify for a conventional loan. Start here.
Can I get a 3% down payment conventional mortgage?
Check your eligibility for a 3% down payment conventional mortgage. Start here (Jun 2nd, 2025) Before Fannie Mae introduced 3% down payment conventional loans, more home buyers who needed a low down payment loan chose an FHA loan. FHA loans are still the best choice for a lot of buyers.
How much Down do you need for a conventional 97 loan?
The next step up would be a conventional 95 loan, which requires 5% (or $15,000) down. Thanks to the Conventional 97 loan and other 3%-down programs, home buyers don’t have to wait years to save the “traditional” 20% down. Verify your Conventional 97 loan eligibility. Start here
How much down payment do you need for a conventional loan?
There is no limit to the size of your down payment with a conventional loan. If you put down 5 percent or more, you will no longer be using the Conventional 97 mortgage, but rather a Conventional 95 loan. With 10 percent down or more it’s just a standard conventional loan.
Should you put 3% down on a conventional loan?
With careful planning and the right mortgage program, putting just 3% down on a conventional loan can make your dream of homeownership a reality. Remember, research, preparation, and expert guidance are key to navigating this exciting journey. So, go forth, aspiring homeowner, and turn your dreams into bricks and mortar!