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‚ĄĘ mortgage and the Conventional 97.¬†The most common non-conventional loans are¬†FHA loans, VA loans and USDA loans.
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 here.¬†This 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.
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.
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).
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.
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.
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.
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.
No, the¬†Conventional 97 program may only used for single-family dwellings.
This mortgage loan is capped at $424,100. Loans over $424,100 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 $636,150.
There is no maximum purchase price per se, but 3 percent down on $437,216 is equal to $424,100. Therefore, if you're seeking to minimize your out-of-pocket payments, purchase a home for $437,216 or less.
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.
No, the¬†Conventional 97 program is for owner-occupied properties only.
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.
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.
No, the Conventional 97 program does not require home buyer counseling for First-Time Home Buyers, or anyone else.
The¬†Conventional 97 program allows for fixed-rate mortgages only. Adjustable-rate mortgages (ARM) are not available.
Yes, the 30-year fixed rate mortgage rate is available to home buyers and refinancing households using¬†Conventional 97.¬†ARMs are not available.
Yes, the 15-year fixed rate mortgage rate is available to home buyers and refinancing households using¬†Conventional 97.¬†ARMs are not available.
Yes, the Conventional 97 program requires that all borrowers carry mortgage insurance.
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.
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.
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.
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.
For home buyers accepting a gift of downpayment of any size -- even $100 -- loan guidelines require a credit score of 740 or higher.
Home buyers making a downpayment from their own reserves/assets¬†need a credit score of 680 or better.
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.
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.
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.
No, a REALTOR¬ģ 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.
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.
The program takes no longer to underwrite than any other conventional mortgage. Approval times vary by lender, but are often quite quick.
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.
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.
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.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)