When you’re looking to buy a home with a small down payment, there are several loan options to choose from. One of the most popular among first-time homebuyers is the Conventional 97 loan. This mortgage option allows you to put down as little as 3%, making homeownership more accessible without the need for government-backed programs. In this blog post, we’ll break down what this loan is, who qualifies, and why it could be the perfect fit for you.

What is a Conventional 97 Loan?

The Conventional 97 loan is a type of conventional mortgage offered by Fannie Mae that allows qualified buyers to finance up to 97% of the home’s purchase price, meaning only a 3% down payment is required. Unlike FHA loans, which are backed by the government, the Conventional 97 is a standard mortgage offered through private lenders but supported by Fannie Mae’s guidelines.
This loan program is specifically designed for homebuyers with limited savings for a down payment, making it an attractive alternative to FHA loans for those who meet certain criteria.

Who Qualifies?

To be eligible, you need to meet the following criteria:

1. First-Time Homebuyer Requirement: At least one borrower must be a first-time homebuyer, meaning they haven’t owned a home in the past three years.
2. Credit Score: The Conventional 97 loan typically requires a credit score of 620 or higher. The higher your score, the better the terms you’ll likely receive.
3. Down Payment: As the name suggests, the Conventional 97 loan requires only a 3% down payment, which can be from personal savings or gifted funds from relatives.
4. Loan Limits: The home price must fall within conforming loan limits, which vary by location but generally cap at $726,200 in 2024. This makes the loan ideal for homes that are priced within the median range.
5. Primary Residence: The property must be your primary residence, meaning second homes and investment properties do not qualify.

Benefits

The Conventional 97 loan offers several advantages, making it a great option for first-time homebuyers who want to minimize their upfront costs:

• Low Down Payment: With only 3% down, this loan allows you to purchase a home without having to save for years to accumulate a large down payment. This is especially appealing to young buyers and those entering the market for the first time.
• No Upfront Mortgage Insurance Premium: Unlike FHA loans, which require an upfront mortgage insurance premium (MIP), the Conventional 97 loan has no upfront costs. You will, however, need to pay private mortgage insurance (PMI) if your down payment is less than 20%.
• Lower Monthly Payments: With PMI, your monthly payments may still be lower than FHA loan payments, since FHA mortgage insurance tends to be higher over the life of the loan. Once you reach 20% equity in your home, you can even remove PMI, further reducing your monthly payments.
• Flexible Guidelines: Conventional 97 loans offer more flexibility than government-backed programs, especially for those who meet the credit score requirements but may not want to deal with FHA’s stricter property standards.

Is this Loan Right for You?

If you’re a first-time homebuyer with good credit and limited savings, the Conventional 97 loan could be the perfect option. It offers the benefit of a low down payment without the extra costs associated with government-backed loans like FHA. Additionally, with the potential to cancel PMI once you build 20% equity, it’s a cost-effective long-term solution for new homeowners.

Before making a decision, it’s important to speak with a knowledgeable lender who can evaluate your specific financial situation. At Pilgrim Mortgage, we can help you determine whether this loan is the best fit for your home financing needs.
Ready to explore your home loan options? Contact Pilgrim Mortgage today to learn more about the Conventional 97 loan and other mortgage solutions. We’re here to guide you through the process and help you make the best choice for your future home!