Conventional Loan 3% Down Available Via Fannie Mae & Freddie Mac

Dan Green
The Mortgage Reports contributor

Conventional Loan

A conventional loan is a loan backed by either Fannie Mae or Freddie Mac, the two entities which comprise the Federal Housing Finance Agency (FHFA). More than half of all new mortgage loans are conventional loans, which include special mortgage programs such as the HomeReady™ mortgage and the Conventional 97. The most common non-conventional loans are FHA loans, VA loans and USDA loans.

Conventional 97 : The 3% Down Mortgage

Editor’s Note: Fannie Mae discontinued its original Conventional 97 program in late-2013. Then, in December 2014, the program relaunched with looser mortgage guidelines. 

Read a complete Q&A about the new Conventional 97 program hereThis post will remain active for archive purposes.

For today’s home buyers, there’s a large mix of low- and no-downpayment mortgages from which to choose.

Fannie Mae and Freddie Mac offer a basic 5% down mortgage. The FHA’s main product requires just 3.5% down. And, via the VA and USDA, qualifying home buyers can buy with no downpayment at all.

There’s an additional low-downpayment program, too, and it’s known as the Conventional 97. Conventional 97 is a Fannie Mae-backed product which allows for a 3 percent downpayment, ultra-low mortgage insurance rates, and a 100% gift from blood or by-marriage relatives.

In addition, today's mortgage rates for the Conventional 97 program are great.

Conventional 97 : Commonly Asked Questions

The Conventional 97 program is available to all U.S. homeowners via Fannie Mae and Freddie Mac.

It’s a true, three-percent-downpayment mortgage program, for which the 3% downpayment may come as a gift. In many respects, it’s more aggressive that the FHA’s benchmark mortgage product in that guidelines are simpler and less-restrictive.

Here are some common answers to questions about the Conventional 97 mortgage.

Is the Conventional 97 a government-backed mortgage program?

Yes, this mortgage program is backed by the government. It’s offered via Fannie Mae only. The program is not available via Freddie Mac, nor is it available via the Federal Housing Administration (FHA), Department of Veterans Affairs (VA) or the U.S. Department of Agriculture (USDA).

What is the minimum downpayment required with the Conventional 97 mortgage program?

The program requires a 3 percent downpayment, at minimum. The 3 percent minimum is based on the lower of the home’s appraised value or purchase price. 3 percent on a $200,000 home purchase is $6,000 for downpayment. By comparison, an FHA mortgage would require at least $7,000 down.

Is the Conventional 97 program “cheaper” than an FHA mortgage?

Yes, in many cases, this loan is less expensive than an FHA mortgage. This is because it does not require an upfront mortgage insurance premium, and because its annual mortgage insurance rates are cheaper, too. Mortgage rates are often comparable.

Can I use the Conventional 97 program for a mortgage refinance?

Yes, Fannie Mae allows homeowners to use the program for rate-and-term refinances only. It may be used for a cash-out refinance. If you plan to use the Conventional 97 to refinance a mortgage pre-dating June 1, 2009, however, consider the HARP refinance first. HARP is a mortgage for underwater homeowners and may offer better loan terms, overall.

Verify your Conventional 97 loan eligibility (Jan 24th, 2022)

Are there property type restrictions for the Conventional 97 program?

Yes, the Conventional 97 program is property type-restricted. The program may only be used for single-family dwellings. This includes single-family detached homes, single-family attached homes, townhomes, condominiums, co-ops, and rowhomes.

Can I use the Conventional 97 for a 2-unit, 3-unit or 4-unit home?

No, the Conventional 97 program may only used for single-family dwellings.

What is the maximum loan size allowed with the Conventional 97?

This mortgage loan is capped at $647,200. Loans over $647,200 are not allowed, even in designated high-cost areas such as New York City, New York; Los Angeles, California; and Montgomery County, Maryland where the local conforming mortgage loan limit is $970,800.

What is the maximum purchase price for a home using the Conventional 97 program?

There is no maximum purchase price per se. But you can divide the current loan limit of $647,200 by 0.97 to will arrive at the maximum purchase price with 3% down.

Are there occupancy requirements for the Conventional 97 mortgage program?

Yes, the Conventional 97 mortgage program enforces occupancy requirements. The loan is available for owner-occupied properties only. You may not use the program for second homes or vacation homes; or investment properties.

I have a renter in my former primary residence. Can I refinance that home using Conventional 97?

No, the Conventional 97 program is for owner-occupied properties only.

What is the combined loan-to-value (CLTV) limit for the Conventional 97 program?

The Conventional 97 is limited to a combined loan-to-value of 97%. You may not use subordinate financing (e.g.; home equity line of credit, home equity loan, “soft second”) in conjunction with a Conventional 97 mortgage.

Verify your Conventional 97 loan eligibility (Jan 24th, 2022)

What income documentation does the Conventional 97 mortgage program require?

The documentation requirements for a Conventional 97 loan are the same as for any other Fannie Mae-backed mortgage. Mortgage applicants should expect to provide recent paystubs, W-2s and federal income tax returns; as well as bank statements and other relevant paperwork. There is no additional paperwork specifically related to the Conventional 97 program.

Does the Conventional 97 program require First-Time Home Buyer counseling?

No, the Conventional 97 program does not require home buyer counseling for First-Time Home Buyers, or anyone else.

What mortgage products are available via Conventional 97?

The Conventional 97 program allows for fixed-rate mortgages only. Adjustable-rate mortgages (ARM) are not available.

Can I choose the 30-year fixed rate mortgage with the Conventional 97 program?

Yes, the 30-year fixed rate mortgage rate is available to home buyers and refinancing households using Conventional 97. ARMs are not available.

Can I choose the 15-year fixed rate mortgage with the Conventional 97 program?

Yes, the 15-year fixed rate mortgage rate is available to home buyers and refinancing households using Conventional 97. ARMs are not available.

Is private mortgage insurance (PMI) required with the Conventional 97 mortgage program?

Yes, the Conventional 97 program requires that all borrowers carry mortgage insurance.

For how many years must I pay PMI via the Conventional 97 program?

The Conventional 97 program is via Fannie Mae, which means that PMI requirements follow Fannie Mae rules. Via the program, private mortgage insurance must only be paid until the home reaches 80% loan-to-value, and so long as 12 months have passed from the start of the loan.

Does Conventional 97 require upfront mortgage insurance, like an FHA loan?

No, the program does not require upfront mortgage insurance premiums like an FHA loan. It only requires annual mortgage insurance, paid monthly, until such time as 12 months have passed and the home reaches 80% loan-to-value.

Does Conventional 97 require a funding fee, like an FHA loan?

No, theloan does not require a funding fee like a VA loan. It only requires an annual mortgage insurance premium, which is paid monthly. The annual mortgage insurance is no longer required after 12 months have passed and after the home has reached 80% loan-to-value.

Does the Conventional 97 program require minimum credit scores?

Yes, this program requires a minimum credit score, which varies by downpayment source. All mortgage applicants must show a credit score of 680 or better. However, mortgage applicants accepting gift funds for a downpayment must show a credit score of at least 740. Your credit score is based on the middle of your three credit scores, as reported by the major credit bureaus TransUnion, Equifax and Experian.

Verify your Conventional 97 loan eligibility (Jan 24th, 2022)

What is the Conventional 97 minimum FICO score if I am accepting a downpayment gift?

For home buyers accepting a gift of downpayment of any size — even $100 — loan guidelines require a credit score of 740 or higher.

What is the Conventional 97 minimum FICO score if I am not accepting a downpayment gift?

Home buyers making a downpayment from their own reserves/assets need a credit score of 680 or better.

Can I use the Conventional 97 program if my credit score is below 680?

No, the loan requires a credit score of at least 680. If your credit score is below 680, consider an FHA mortgage. The FHA allows for 3.5% downpayment and does not enforce a minimum credit score in many cases.

I am bringing 3% to my closing, but am also accepting a gift to help with closing costs. What is the minimum credit score requirement in this case?

For home buyers bringing at least 3% of their own funds to closing, the minimum credit score requirement is 680, regardless of supplemental contributions made by parents or other family members.

Who does the Conventional 97 consider to be an acceptable “donor” for gift funds?

There are restrictions on the source of gift funds. Buyers can accept from a relative, which includes a spouse, child, or anyone else related by blood, marriage, adoption, or legal guardianship. Gifts may also be accepted from a fiance/fiancee or a domestic partner.

Can I accept a gift of downpayment from my REALTOR® or the seller?

No, a REALTOR® may not provide the gift of downpayment, nor may any other interested party to the transaction. This includes the seller, the mortgage lender, and the title representative, among others.

Does the Conventional 97 program enforce a maximum Debt-to-Income (DTI)?

Yes, loan guidelines enforce a maximum DTI, which varies by downpayment “source”. Mortgage applicants making a downpayment from their own funds may not exceed 45% debt-to-income via the program. Mortgage applicants accepting gift funds for a downpayment are limited to 41% DTI. Debt-to-income is calculated by dividing your total monthly debt obligations into your total verifiable monthly income.

How long does it take to close with Conventional 97 financing?

The program takes no longer to underwrite than any other conventional mortgage. Approval times vary by lender, but are often quite quick.

When does the Conventional 97 program expire?

This mortgage loan does not “expire”. It’s not like the Home Affordable Refinance Program (HARP), which was created to spur housing and the economy. Fannie Mae’s 3 percent downpayment program is indefinite.

My lender doesn’t offer the Conventional 97 program. What do I do?

This mortgage is a specialized program and is not available through via all mortgage lenders. If you’ve been turned down for the Conventional 97 mortgage by your primary lender, just apply again here. You’ll likely find a different outcome.

How Do I Apply For The Conventional 97 program?

This loan is not a new program. However, it’s a decidedly cheaper option as compared to the FHA. The Federal Housing Administration has raised its mortgage insurance rates so many times that its benchmark product has moved to second place.

If you’re buying a home and plan to make a low downpayment; or refinancing one and have little home equity, look to the Conventional 97 program. It’s fast, it’s cheap, and the rates are great.

Get started with a free, no-obligation Conventional 97 online mortgage rate quote. View today’s rates and see how much home you can afford. Because with lower downpayments and smaller PMI, your home-buying dollar should get you much, much more.

Verify your Conventional 97 loan eligibility (Jan 24th, 2022)