Routing # 256078446
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What is a Conventional 97 Loan?
What you'll learn: Whether a conventional 97 mortgage is the best low-down-payment option for you.
EXPECTED READ TIME: 3 MINUTES
February 6, 2024 | Updated December 9, 2024
If you’re a first-time homebuyer on the hunt for a new home, but are looking for options that don’t require a 20% down payment, you may want to consider applying for a conventional 97 mortgage loan.
A conventional 97 loan is a mortgage option that allows homebuyers to borrow 97% of a home’s value, meaning you only have to provide a 3% down payment. This can make the dream of homeownership a reality that much faster for first-time buyers who don’t have a lot of cash.
Conventional 97 loan pros
As one of the lowest home down payment options on the market, conventional 97 loans are a great tool for first-time homebuyers. Of course, the terms and requirements will vary depending on the lender you select. For the most part, all conventional 97 home loans provide buyers with the following benefits:
- 3% down payment: Spend less time saving up prior to purchasing a home and buy it that much sooner. Plus, you’ll be able to put your savings toward other goals and possible renovations in your new home.
- Ability to cancel mortgage insurance later: As a result of the low down payment, you’ll be required to pay for mortgage insurance each month. However, you’ll have the option to cancel your mortgage insurance once you have enough equity in your home.
Conventional 97 loan cons
As great of an option as these loans seem to be, it’s important to consider their drawbacks before you sign on to one. You may be saving money up front, but that may mean you’re spending more each month when you factor in interest rates and more, including:
- Requires private mortgage insurance (PMI): While you may save more up front with a low down payment, you will be required to pay for mortgage insurance that may increase your monthly payments.
- The loan amount can not exceed conforming limits for the county in which the property is located. This may limit your home options or the areas where you can shop for one.
Getting a conventional 97 loan
Other than only requiring a 3% down payment, getting conventional 97 home loans work like any other conventional mortgage loan. You’ll have to find a trusted lender who offers them, apply, and be approved for funding. However, conventional 97 loans do have qualifications you must meet in order to be eligible.
For instance, the 97 loan program is only available to first-time buyers. A first-time buyer is defined as a borrower who hasn’t owned a home in the past three years. There are a few more qualifications you must meet, including:
- Loan must be a fixed-rate mortgage
- Property must be a primary residence
- Must have a debt-to-income (DTI) ratio of no more than 43%
- House must be a one-unit, single-family home, co-op, or condo
- Borrower must take a homebuyer education course
- The loan must be equal to or less than $806,500
- Have a credit score of at least 620 or higher
These requirements will probably feel much more achievable to many first-time homebuyers.
Conventional 97 loan interest rates
The interest rates for conventional 97 loans are based on the standard Fannie Mae rates, but have a slight rate increase due to their low down payment requirement.
You’ll also have to factor in the cost of PMI to your monthly mortgage payments. However, you’ll save more money up front when you close on the home purchase. For many buyers, the extra costs per month are worth the cheaper down payment and ability to buy a home faster than if they had to wait and save.
Conventional 97 loans vs. FHA loans and other options
Loans like an FHA and conventional 97 loans make it easier for buyers to purchase a home without paying a large down payment. Unlike FHA loans, though, conventional 97 home loans are not government backed. This makes them riskier investments for lenders, resulting in increased interest rates, PMI requirements, and other added costs.
FHA loans are still a great option for first-time borrowers. FHA loans do require mortgage insurance premiums (MIP) that don’t go away unless you put down 20% or more. You’ll be required to pay these premiums until the loan is refinanced or paid off.
If you’re a veteran or military member, you may want to consider a VA loan. VA loans have no down payment requirements or mortgage insurance — just a single, up-front funding fee.
Why choose a conventional 97 loan?
Conventional 97 loans are a helpful tool that reduce a huge obstacle for many first-time homebuyers — the down payment. However, it’s important to keep in mind that reducing your down payment may lead to other expenses like a higher monthly payment.
Be sure to shop around for a lender so you know you’re getting the best rate and terms, no matter what mortgage loan you decide on. It’s always best to speak with a financial expert so you know all of your mortgage options before you sign on the dotted line.
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Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.0 discount point, which equals 1.0 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.125 discount point, which equals 1.125 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.625 discount point, which equals 0.625 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
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