Conventional 97 Loan. 3% Down Homebuying Without Using FHA
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 homebuying program offered by conventional loan agencies Fannie Mae and Freddie Mac. A common myth is that conventional loans require 20% down, but here's a 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 FHA's 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.
Conventional 97 Advantages
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 because it makes a home offer appear stronger to sellers who are averse to FHA financing.
Cancelable PMI
No upfront mortgage insurance premium (1.75% for FHA)
3% down payment
Ability to state conventional financing on a home offer
Wide availability among lenders nationwide, enabling you to shop for rates
Use roommate income to qualify for some types
Loan amounts up to $806,500
Conventional 97 Requirements & Who Qualifies
Not everyone will qualify for the a 3% down conventional loan. Typically, those with strong credit, employment, and income profiles have better chances of qualifying and receiving better rates and PMI costs.
Minimum 620 credit score
Maximum 45% debt-to-income ratio in most cases
3% down can come from family gifts and eligible down payment assistance sources
Must be a first-time buyer for some types
Income limits apply for some types
1-unit homes, eligible condos, and townhomes
Property must pass appraisal requirements
Some types allow fixed-rate mortgages only
Loan must meet standard conventional loan limits of $806,500 or less
Primary residences only
Homeownership education required for most types
Limited derogatory credit
Conventional 97 vs FHA
Neither Conventional 97 nor FHA are “better” for everyone. Each has its merits. In general:
Homebuyers with higher credit and strong employment history will likely pay less overall with a conventional loan.
Those with lower credit or tougher scenarios may pay less and be approved more easily with FHA.
As a quick example, someone with a 640 credit score would pay over $400 per month on a $300,000 loan using Conventional 97, but only $137 with FHA. But someone with a 760 credit score would pay about the same for conventional PMI as for FHA mortgage insurance, potentially making conventional the better choice.
The best plan is to have a lender run both scenarios for your exact situation, then weigh the current and future costs of each.
Cost
Surprisingly, FHA is the cheaper monthly option for most situations. This is due to less expensive mortgage insurance and lower rates, thanks to strong government backing. Following is a chart showing Conventional 97 costs versus FHA for someone with a 720 credit score.
Which is Better: Conventional 97 or FHA?
| Loan Attribute | Conventional 97 | FHA |
|---|---|---|
| Down Payment | 3% | 3.5% |
| Credit Score | 620 | 580 |
| Upfront Mortgage Insurance | None | 1.75% |
| Monthly Mortgage Insurance | Cancelable. Cost depends on credit score, typically 0.5%-2% of the loan per year | Permanent. 0.55% per year for most borrowers |
| Units | 1-unit primary residence | 1-4 unit primary residence |
| 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 types | Not required |
How to Get a Conventional 97 Loan
Getting a Conventional 97 mortgage is similar to applying for any mortgage. Some borrowers can receive a pre-qualification the same day, or a full pre-approval in a few days.
Here’s how the process works.
1. Request Pre-Approval
It may seem early, but getting pre-approved lets you know how much money you need to save, your homebuying budget, and potential issues to work on.
2. Gather Funds
Save 3% of your approved home price, plus another 2-5% for closing costs. It’s also a good idea to have an additional 2-3 months of mortgage payments in the bank after closing.
3. Make Offers
Your first few offers may not be accepted. Keep trying until a seller accepts your offer.
4. Send New Documentation to the Lender
Your pre-approval documentation may be outdated. Give the lender your accepted purchase contract and updated pay stubs, bank statements, and other documents.
5. Wait for Underwriting
The lender will review the file including the accepted offer and appraisal.
6. Closing and Funding
Upon final approval, you’ll sign final loan documents. You’ll wire your 3% down payment and closing cost amount to the escrow company. A few days later, the loan will close and you will officially own the home.
7. Move In
You’re a homeowner. Start moving in!
Conventional 97 Rates & Trends
See today’s conventional loan rates by entering your desired home price and other details below.
Conventional 97 Pros and Cons
Pros | Cons |
Cancelable Mortgage Insurance: Mortgage insurance is cancelable when you reach 20% equity in the home. | Harder to Qualify: Buyers with marginal credit or spotty employment will qualify for FHA more easily. |
Stronger Offers: Conventional financing typically increases the chances of an accepted offer. | PMI Costs: Expensive PMI for those with lower credit scores. |
Flexible Down Payment Sources: Just 3% down, which can come from savings, a 401k loan, gifts from family, or eligible down payment assistance. | Income Limits: Some conventional 3% down programs have income limits |
Reduced Rates: First-time buyers with incomes less than 100% of their area median income may qualify for lower rates. | Higher Rates: Conventional loans come with higher rates than FHA since they are not government-backed. |
Reduced PMI: Some borrowers meeting income limits are eligible for a PMI discount. | Added Restrictions: 5% down conventional loans come with lower rates, lower PMI, no income limits, and other benefits |
Widely Available: Most lenders offer 3% down conventional options | No “conforming jumbo” loans in high-cost areas. Limit is $806,500 nationwide. |
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. |
Conventional 97 Homeownership Education Requirement
Homebuyers shouldn't be intimidated by the homeownership education requirement for most 3% down conventional programs.
Typically, courses can be taken online and are free in some cases.
Fannie Mae offers its own free course that satisfies the requirement, called Fannie Mae HomeView®.
How Much is PMI?
Conventional 97 loans require private mortgage insurance, as do all conventional loans with less than 20% down. And because the down payment is small, mortgage insurance providers view them as a higher risk and charge higher PMI rates than for 5% or 10% down loans.
Some homebuyers are surprised that PMI can run upwards of $400 per month or more, especially for those with lower credit scores or high loan amounts.
How does Conventional 97 PMI compare with FHA mortgage insurance? As mentioned, conventional PMI can be affordable, but gets expensive for those with lower credit scores. In fact, you need at least a 760 credit score for conventional mortgage insurance to be as affordable as FHA's.
| Loan Amount | 620 | 660 | 700 | 740 | 760 | FHA, All Scores |
|---|---|---|---|---|---|---|
| $200,000 | $310 | $257 | $165 | $117 | $97 | $92 |
| $300,000 | $465 | $385 | $247 | $175 | $145 | $137 |
| $400,000 | $620 | $513 | $330 | $233 | $193 | $183 |
All figures are from MGIC and HUD, and are estimates.
Another view organized by loan program shows how conventional PMI compares with FHA mortgage insurance on a $300,000 loan.
| Loan and Down Payment | 620 Credit Score | 700 Credit Score | 760 Credit Score |
|---|---|---|---|
| FHA 3.5% Down | $137 | $137 | $137 |
| Conv. 3% Down | $465 | $247 | $145 |
| Conv. 5% Down | $355 | $195 | $95 |
All figures are from MGIC and HUD, and are estimates.
Conventional 95. A Better Deal?
A Conventional 97 Loan lowers your upfront expense, but costs more monthly, mainly due to higher mortgage insurance rates. Some buyers choose a 5% down conventional loan to reduce their monthly cost. Some save even more by putting 10% down.
Here’s another comparison of estimated monthly payments for 3% down versus 5%.
How To Pay For Your 3% Down Payment and Closing Costs
You can cover your down payment and closing costs from a variety of sources including:
Savings: You can pull from personal checking and savings accounts or 401k via a loan or withdrawal. Another option that has gained popularity is cryptocurrency. All crypto must be converted to USD and a papertrail of ownership for the last 60 days supplied to the lender.
The Lender: Some lenders cover part of the 3% down payment for lower-income borrowers or those buying in certain areas.
Down Payment Assistance: Local governments, non-profits, and other sources offer down payment assistance (DPA). Conventional 97 allows eligible DPA providers to cover the entire down payment and closing cost total.
Gifts from Family: You can receive a financial gift from a relative to cover your 3% down payment and all closing costs.
Seller Credits: Sellers sometimes offer closing cost assistance, called seller concessions, to the buyer. These funds can’t be used for the down payment but can cover most or all of the closing costs. On a 3% down conventional loan, the seller can give 3% of the purchase price in closing cost assistance.
Conventional 97 Advantages
- Cancelable mortgage insurance
- No upfront mortgage insurance
- Many sellers prefer conventional over FHA financing
- Loan amounts up to $806,500
Conventional 97 Renovation
Surprisingly, you can use a conventional loan to buy a fixer-upper. You can finance the home and improvement costs with just 3% down.
That means you can buy a home that does not currently meet financing standards as long as the repair work will correct those issues.
The work starts after closing, so to the seller, the transaction is the same as any other financed offer. And, unlike FHA rehab loans, you can install luxury amenities like outdoor barbeques, as long as improvements are permanently attached to the property.
Some conventional rehab options are:
Fannie Mae HomeStyle
Freddie Mac CHOICERenovation®
Freddie Mac CHOICEReno eXPress
Not all lenders do conventional renovation loans, so call around to find an experienced lender that knows how to close these loans efficiently.
3% Down Conventional Loan FAQ
How do I apply for a Conventional 97 loan?
Most lenders offer a 3% down conventional option. Search online or call a lender you trust and complete the application. Most lenders offer online applications, but it’s worth an initial conversation with a loan officer to let them know your situation and to expect your application. Complete the application which should take 10-15 minutes, then call the lender for next steps.
Can I roll closing costs into a Conventional 97?
You may not roll closing costs into the Conventional 97 loan. However, you can get a closing cost secon loan from an approved source like city or state government. These are called Community Seconds.
What is the minimum credit score?
The minimum credit score for a Conventional 97 is 620, but you should have a 700 score or higher for lower rates and PMI costs.
What are the official names for the Conventional 97 loan?
Freddie Mac calls it the HomeOne® Program. Fannie Mae simply calls it the “97% LTV Standard.” These loans come with similar guidelines. Other options are Fannie Mae’s HomeReady and Freddie Mac’s Home Possible, both of which come with income limits.
Do most lenders offer both Conventional 97 and FHA?
Yes, most lenders offer both programs and can help you determine which one you qualify for. If you can be approved for both, your lender will help you figure out which one comes with the lowest cost and most benefits.
Do you have to be a first-time homebuyer to use Conventional 97 or FHA?
Conventional 97 requires at least one applicant to be a first-time buyer. FHA has no first-time requirement.
Is Conventional 97 or FHA cheaper?
Your credit score and income level affect your final rate and mortgage insurance costs. Those with lower income and high credit scores might choose Conventional 97, thanks to its discounts for moderate-income borrowers. Those with lower credit might choose FHA because its mortgage insurance is cheaper for those with credit scores below about 740.
What property types are acceptable?
Single-family residences, condos, and townhomes are eligible. Manufactured homes are typically not eligible. You may not use a Conventional 97 on a second home or investment property.
How much is PMI for a 3% down conventional loan?
PMI varies widely based on credit score. According to PMI provider MGIC, you’ll pay around 1.86% of the loan amount per year with a 620 score to 0.58% per year with 760+. Other companies may offer slightly different rates.
I planned to put down 5% and have a pre-approval, but would feel more comfortable with 3%. Can I change?
It’s possible if you qualify for the higher payment and lower loan-to-value. Have your lender re-run the scenario through the same computer software they used to issue the original approval to see if you are still approved with a lower down payment.
My lender says I should do FHA instead of Conventional 97. Why?
Your credit score is likely below about 700-720. PMI is much more expensive for Conventional 97 loans versus FHA for those with lower credit. FHA also allows higher debt-to-income ratios, or DTIs. If your DTI is higher than about 43-45%, FHA may be the only option.
What are the income limits for Conventional 97?
Fannie Mae’s standard 97% LTV loan has no income limits, nor does Freddie Mac’s HomeOne. However, alternative options like HomeReady and Home Possible require you to make 80% or less of your area’s median income. Check your local limits on Fannie Mae’s income lookup tool.
I heard the FHFA/Fannie Mae/Freddie Mac were ending the Conventional 97 program. Is that true?
As of March 2025, the Federal Housing Finance Agency (FHFA) which oversees Fannie Mae and Freddie Mac, still offer 3% down programs.
What is the Flex 97 Mortgage Program?
The Flex 97 Mortgage is the same thing as Conventional 97. It’s how some lenders brand the 3% down conventional option.
Conventional 97 Next Steps
The Conventional 97 program can be a big help to those who want to put 3% down but don’t want the permanent mortgage insurance of FHA.
You can start your lender search and begin your application or do your own research on lenders before applying. Whatever your preference, it’s worth checking your eligibility for this powerful program.
