Understanding Conventional 97 Loans

To qualify for a loan, you usually need to have some money as a down payment. However, saving for this down payment, which usually represents tens of thousands of dollars, can be difficult. Unfortunately, it may push many potential buyers away of the homeownership dream.

To address this problem, Fannie Mae offers conventional loans to cover as much as 97% of the purchase price. Sometimes called “conventional 97 loans,” they could be your solution to the downpayment problem.

Your Guide to Conventional 97 Loans

Why is LTV so Important?

To understand the basics of conventional 97 loans, you have to understand the importance of loan-to-value, often shortened to “LTV.” Loan-to-value is a fundamental ratio used in lending to designate the size of the loan against the value of the property. If a property is worth $1 million dollars, and the bank makes a loan for $1 million, the LTV is exactly 100%. If the bank loans $500,000 on the same property, the LTV is 50%. ($500,000 is 50% of $1 million.)

Banks like to see as small an LTV as possible. In general, lenders see borrowers with  more equity in the home as lower risks. Therefore, if you bring, say, a 20% downpayment and need a loan to cover to remaining 80%, you are, statistically speaking, less of a risk than if you bring a 5% down payment and need a 95% LTV loan.  In general, the higher the LTV, the more hesitant lenders become.

What are Conventional 97 Loans?

As you likely know, saving for even a small down payment can be difficult. In fact, it’s sometimes suggested that the down payment is the single-biggest barrier to home ownership. To expand access to ownership, Fannie Mae offers 97% loan-to-value loans. These programs help credit worthy buyers, who may not have the finances on hand for a large down payment, to purchase a home by borrowing up to 97% of the property value.

These loans are fixed-rate mortgages and come with term options up to 30 years. All other mortgage types, such as ARM loans, jumbo loans, renovation loans, and others, are ineligible for Fannie Mae’s 97% program.

These loans are available for single-unit family homes that will be a primary residence, but you (and the property) will need to meet certain requirements.

How to Qualify for a Conventional 97 Loan?

To qualify for a conventional 97 loan, you will have to make sure you meet certain standards set by Fannie Mae. The organization has standards for qualifying for two different programs: HomeReady and Fannie Mae Standard.

Qualifying for HomeReady

HomeReady is a program that creates mortgage options for low-down payment borrowers, providing assistance and support to lenders who write these loans. In general, this program is for low-income homebuyers who need to purchase or refinance. To qualify for a conventional 97 under the HomeReady program, you will have to qualify under preset income limits and will have to have 25% mortgage insurance coverage. There will also be homeownership education requirements that you will need to complete. As far as pricing, there will be loan-level pricing adjustments that you will need to discuss with your mortgage expert or lender.

With HomeReady, you do not need to be a first-time homebuyer.

Qualifying for Fannie Mae Standard

Fannie Mae also offers standard loans with a 97% LTV, but to qualify you will need to be a first-time homebuyer. There are no income limits. You will need standard mortgage insurance coverage, which reduces the risk to lenders. However, there is no requirement for homeownership education or counseling. For pricing, there will be a standard risk-based loan-level price adjustment.

Property Must Be Eligible As Well

Condos can be purchased with conventional 97 loans

To qualify, the property in question must also be eligible. If you want to use a conventional 97, you’ll need a property that is a one-unit principal residence. This can include condos, co-ops, and planned unit development. In most cases, as long as it is your primary residence single-family home the property in question should be eligible for the program.

As we said, you can buy a condo or a townhouse with a conventional 97 loan. However, if the unit is divided into multiple residences or rental spaces, it will not be eligible. Also, you can not purchase manufactured housing with a conventional 97 loan, as these buildings are not allowed under the program. This program is designed to encourage typical homeownership among American individuals and families, so you cannot use a conventional 97 loan to purchase an investment property or a second home, such as a vacation house. 

Refinancing with 97 Loans

It is also possible to refinance with a 97% loan that is backed by Fannie Mae. While people have many different reasons for refinancing, someone might need this option if they owe more than the house is worth and is considered “upside-down” on the mortgage. They may also have high interest rates or poor terms (such as loan length) that are making the mortgage unaffordable. These are tough situations, but using a 97% loan to refinance could be a viable solution.

These refinancing loans are Limited Cash-Out Refinance loans for transactions that are underwritten by Desktop Underwriter, a program that assesses risk for lenders. Lenders will have to use Desktop Underwriter when the mortgage is being refinanced is owned or guaranteed by Fannie Mae. The lender will have to document ownership of the existing loan. This documentation can come from the lender’s system, the current servicer, or Fannie Mae’s software tools.

Guiding You Through All Aspects of Mortgage Qualification

Let the expert team at San Diego Purchase Loans today and we’ll help you understand the details of conventional 97 loans. These programs can help you get a high-quality home with a minimal downpayment. In the long run, this could be the difference between homeownership and decades of renting.

We would love to put our experience and dedication to work for you. Contact us today and discover if conventional 97 loans would be right for your homeownership needs!


“Chad Baker is THE BEST, most professional, understanding, HONEST person I’ve ever worked in the mortgage industry. He knows exactly what he’s talking about, will never promise something he can’t deliver, and will bend over backwards to get you what you need. I had a very unique problem qualifying and every other mortgage company I worked with assured me from the beginning that they could get me financed, and then it would all fall apart once we hit underwriting. Chad understood my circumstance from the beginning and patiently explained every step of the way. I can’t thank you enough Chad! Juliann has been great keeping me updated and making sure that everything comes together in a timely fashion. She also appreciates my sense of humor, which gives personality to a boring funding process. Thanks Juliann! I HIGHLY recommend Home Point and if I ever buy another home, will absolutely use them again.”

“Juliann – Thank you very much for your patience and help with everything. I can say 150% that we could not have gotten through this without you. I have been through this process before a few times BUT never have received this type of care/attention. This process is intense and you managed to humanize this life changing experience for us – rather than being a loan number. If you or Home Point ever need an official recommendation from us, you can count us in.”

Outstanding experience

I was referred to Chad by my Realtor for a purchase of a new house. The experience with Chad and the team (I mainly worked with Juliann) was nothing short of outstanding. From start to finish there were always quick to respond and when needed, notify me of any new documentation that was required. There were very helpful explaining to me the pros and cons of different financing options as well as some other loan related issues, such as termite clearance outside the purchase contact and septic tank certification process. Overall, very knowledgeable and processional team. Loan preapproval was done in a single day and loan documents were ready for signing in 21 days, which was 9 days ahead of schedule. That never happened to me before.


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Chad Baker is Regional Manager for RPM Mortgage. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2016.
Got a question for Chad? Call (858) 353-8331 or submit your question online