Fannie Mae low down payment mortgage requires just 3 percent down

Dan Green
The Mortgage Reports contributor

The 3 percent down mortgage from Fannie Mae

For buyers looking for a low-downpayment mortgage option that’s not backed by the FHA, Fannie Mae has two options — the HomeReady™ mortgage and the Conventional 97.

HomeReady™ applies to certain low-income census tracts; and areas with high minority concentrations. By contrast, Conventional 97 is available for use everywhere.

The Conventional 97 program is meant to help homebuyers who might other qualify for a loan but lack the resources — or the desire — to make a five percent down payment or more.

The 97 percent LTV program launched a few years ago. Now, it’s among the most in-demand programs for today’s home buyers.

Verify your 3 percent down loan eligibility (Jan 16th, 2021)

In this article:

The Conventional 97 is a low down payment mortgage program that might be perfect for you:

  • The program allows first-time and repeat buyers
  • Its minimum down payment is just 3 percent
  • The property must be a primary residence with a loan not exceeding $548,250.

You’ll have to pay mortgage insurance premiums, but they are usually less expensive than those of comparable FHA home loans.

Low-down-payment and no-down-payment mortgage options

With the introduction of the Conventional 97 home loan, the U.S. government is making it easier for potential buyers to become homeowners.

Fannie Mae and Freddie Mac join the FHA, VA, and USDA in offering low-downpayment loans to buyers nationwide.

The Conventional 97’s aggressive terms have helped it to grab market share from the FHA loan, which is another low-downpayment option available in today’s market.

YouTube Video

The FHA loan has its place, though.

FHA loans require down payments of 3.5 percent and home buyers with less-than-perfect credit may find FHA loans to be more cost-effective than the Conventional 97. Especially because FHA mortgage rates are typically 25 basis points (0.25 percent) below rates for a comparable conventional loan.

Borrowers with better-than-average credit scores, though, typically save by using the Conventional 97.

VA loans are another popular comparison product for the Conventional 97.

Available to veterans and active members of the military, VA loans allow for 100 percent financing and never require borrowers to pay mortgage insurance.

VA mortgage rates are typically 25 basis points (0.25 percent) below rates for a comparable conventional loan and VA loans are backed by the Department of Veterans Affairs.

USDA loans are a third comparison option.

USDA loans are guaranteed by the U.S. Department of Agriculture and, although they’re sometimes called “Rural Housing Loans”, USDA loans can be used in many suburban locations, too.

USDA loans offer very low rates and allow for 100 V financing. They also require just a small mortgage insurance premium as compared to other low- and no-down-payment loans.

Today’s home buyer has plenty of financing options.

Verify your 3 percent down loan eligibility (Jan 16th, 2021)

Conventional 97 mortgage eligibility Q&A

Is the Conventional 97 loan the same program as HomeReady™?

No, the Conventional 97 is available to everyone. HomeReady™ is only available in low-income census tracts, to low-income borrowers, in areas of high minority concentration, and in regions declared a disaster area.

Can first-time buyers use the Conventional 97 program to purchase a home?

Yes. You can use the 97 percent Fannie Mae conventional loan if you are a first-timer or repeat buyer.

What is the definition of a “first-time home buyer”?

For most programs, you’re a first-time homebuyer if you have not owned a primary residence within the last three years. There are other exceptions to this rule for those with homes that can’t be repaired to livable standards, those with mobile homes (personal property) and others.

Is the Conventional 97 the same as the HomeReady® program?

No, HomeReady® is a different program. That program is aimed at applicants who meet income-eligibility guidelines, putting them in the low or moderate-income categories.

Are down payments larger than 3 percent allowed with the program?

Yes, there is no limit to the size of your down payment with the Conventional 97. With a down payment of five percent or more, though, you will no longer be using the Conventional 97.

Is the low-downpayment mortgage program via Fannie Mae and Freddie Mac better than an FHA loan?

There is no “best” low-downpayment mortgage program. What’s best for one home buyer may not be what’s best for another. Each program has its benefits.

What mortgage products are available via the Conventional 97 mortgage program?

The Conventional 97 mortgage program allows mortgage applicants to use the 30-year fixed rate mortgage only. You can’t use it for 15-year fixed loans or ARM products.

Verify your 3 percent down loan eligibility (Jan 16th, 2021)

Can I use an adjustable-rate mortgage (ARM) with the Conventional 97?

No, the Conventional 97 allows mortgage applicants to use 30-year fixed rate mortgages only.

What is the loan limit on the 3 percent down program through Fannie Mae and Freddie Mac?

The 3 percent down payment program is limited to loan sizes of $548,250 or less. Loans in high-cost areas are permitted, but loan sizes remain capped at local conforming loan limits.

What is the maximum number of units for a home under the 3 percent down payment program?

The 3 percent down-payment program is for single-unit homes only. This includes single-family detached homes and single-family attached homes such as condominiums and townhomes. This means you can’t use the program for duplexes, tri-plexes or four-plexes.

Are vacation homes eligible under the Conventional 97?

No, the 3 percent down payment program is for primary residences only. You’ll need a different loan for vacation and second homes.

Can I use the Conventional 97 for investment properties?

No, the 3 percent down-payment program is for primary homes only. You can’t finance a rental or investment property with this product.

Does the Conventional 97 mortgage program require home buyers to attend home-buyer counseling?

No, there is no home-buyer counseling requirement with the Conventional 97 mortgage program.

Does the Conventional 97 require mortgage insurance?

Yes, mortgage applicants must pay private mortgage insurance (PMI) premiums. Your mortgage lender applies for your mortgage insurance policy when processing your home loan.

Can I refinance a non-Fannie Mae loan with Fannie Mae under the 97 percent LTV program?

No, the loan you refinance must be a Fannie Mae home loan.

How do I determine if my loan is a Fannie Mae mortgage?

To determine if Fannie Mae backs your current loan, ask your lender or use Fannie Mae’s loan lookup tool.

Does the 97 percent mortgage program allow cash-out refinancing?

No, the 97 percent mortgage program does not allow cash-out refinances. Borrowers may do a cash-in refinance or a “limited cash-out” refinance only.

Get today’s mortgage rates now

The Conventional 97 is another low-downpayment option for today’s home buyer; and a simplified way for existing homeowners to get a refinance.

Get today’s live mortgage rates now.

Verify your 3 percent down loan eligibility (Jan 16th, 2021)