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!


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When looking for a house, we had couple recommendations for a lender. After talking with all the lenders, many were difficult to work with and couldn’t get it done as quickly as we needed. I was referred to Chad Baker’s team and I am glad we did. Not only did they get the things done quickly for us, they were very easily to get ahold of. It wasn’t rare to get a response within 15 minutes whenever an email was sent. I could not express how friendly and outgoing this team is. And on top of that, they came back with the best offer for us amongst all the other brokers. I am glad I worked with these guys. If you are looking for a lender…MAKE SURE TO CALL CHAD BAKER AND TEAM!!! Thanks Chad for all your hard work. Next time we buy another house I am calling you first!

I hope you enjoyed reading this article. It's my goal to keep you updated with the latest real estate mortgage news. I'm proud to provide you with 100% original and unique content. Subscribe now to get high quality real estate mortgage content and articles delivered directly to your inbox. Chad Baker is Regional Manager for LendUS. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2017. Got a question for Chad? Call (858) 353-8331 or submit your question online