home equity loan

Home Buying

Considering a Conventional 97 Loan? Read This First

February 17, 2019 | by Luke Babich

At A Glance

The Conventional 97 loan from Fannie Mae and Freddie Mac, two of the nation’s biggest mortgage agencies, gives buyers a down payment option that’s even lower than the FHA. A Conventional 97 only applies to single-family homes, co-ops, condos, or PUDs valued below $484k that you plan on claiming as your primary residence. At an absolute minimum, buyers must have at least a 620 credit score.

home equity loan

A Conventional 97 loan from the nation's two biggest mortgage holders in the country, Fannie Mae and Freddie Mac, allows buyers to purchase homes with only 3% down.

Here’s everything you need to know.

How Does a Conventional 97 Loan Work?

A Conventional 97 is known as the "standard 3-percent down loan." Typically, when you're buying a home, you’ll need to make a down payment of 20% of the house's value before you can assume ownership.

That means that, if you're looking at a $200,000 house, you need to be able to pay at least $40,000 up front to qualify for the loan.

Of course, not many people have a casual $40,000 just lying around. That's why Fannie Mae and Freddie Mac created their own low-down-payment loan programs — they’re looking to encourage homeownership by removing this common barrier to entry.

Learn More: Other Ways to Buy a House With Little or No Down Payment

Instead of putting 20% down ($40,000), with a Conventional 97 loan, you only have to put 3% down ($6,000). That sounds much more doable, right?

Potential Benefits

Owning a home for a long time period is typically a good financial decision.

According to the US Census, "median home values adjusted for inflation nearly quadrupled over the 60-year period since the first housing census in 1940."

Most investors would call a 400% increase in value a no-brainer, even if there are plenty of ups and downs in the market.

After all, time in the market beats timing of the market. If you find a good deal on a house but you only have a few thousand dollars for the down payment, a Conventional 97 loan might be a great option for you.

Buying a house is the biggest investment most people ever make. If you're personally ready to buy a house, lenders are making it easier for you to be financially ready, too.

Fannie Mae and Freddie Mac have found that the biggest barrier for most first-time homebuyers is the down-payment requirement. That's why the Conventional 97 is so low.


Buying a home for only $6k sounds too good to be true, right? What are the drawbacks?

Well, first off, if you only put 3% down, you're going to need to purchase private mortgage insurance, or PMI.

This is insurance that protects the lender in case you default on your payments and go into foreclosure. The banks want to protect themselves against risky investments. If you only put 3% down, the bank sees you as risky.

What does that mean for you? It's another monthly payment you'll have to make, at least until you've built up enough equity in the home for the banks to see you as safe.

Second, since you only put 3% down, you're not going to qualify for the best interest rate. The standard Fannie Mae rate is between 4-5%. Expect to have a possible 1-2% increase, but it may be lower if you're lucky.

Interest rates are how banks make money. Since you're borrowing more money from them, they're going to charge you more. Keep in mind, though, that there's a possibility that the banks won't charge you a higher interest rate because of your PMI.

What does that mean for you? If you buy a house for $200,000, a 1-2% interest rate hike will mean paying $2,000 to $4,000 more over the course of your loan.

Who Qualifies for the Conventional 97?

There are a number of qualifications for the Conventional 97 loan:

  1. You must be a first-time homebuyer, or you need to have not owned a home in the past three years.
  2. The property needs to be a single-family home, condo, co-op, or PUD.
  3. The property needs to be listed as the buyer's primary residence (you're not using a conventional 97 loan to buy a rental property).
  4. The loan amount is below ~$490,000. This depends on your county.
  5. You need to have at least a 620 credit score.

Next Steps

If you’re currently evaluating your financing options for an upcoming home purchase, a good first step is connecting with an experienced local real estate agent.

Agents can provide invaluable guidance and support throughout the home-buying process — and that includes making recommendations on mortgage types and good lenders, given your specific financial circumstances and goals.

What’s more, when you find your agent through Clever, in addition to getting partnered with a full-service agent from a major brand or brokerage (Century 21, Keller Williams, RE/MAX, etc.), you can also qualify for a Home Buyers Rebate.

The rebate can put up to 1% of the final sale price back in your hands after closing — that often translates to thousands of dollars that can be applied towards your down payment, mortgage, closing costs, moving expenses, and more.

Want to learn more? Fill out our online form and a Clever representative will be in touch to answer any questions you might have and get you connected with a top-rated, full-service buyer’s agent near you.

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