Conventional 3% Down Mortgages 27 FAQ’s

Contents
  1. Is the Conventional 97 a government-backed mortgage program?
  2. What is the minimum down payment required with the Conventional 97 mortgage program?
  3. Can the Down Payment be a Gift?
  4. Can the Seller Pay My Closing Costs?
  5. Is the Conventional 97 program “cheaper” than an FHA mortgage?
  6. Can I use the Conventional 97 program for a mortgage refinance?
  7. Click here to get started with a Conventional 97 mortgage loan
  8. Are there property type restrictions for the Conventional 97 program?
  9. Can I use the Conventional 97 for a manufactured or mobile home?
  10. What is the maximum loan size allowed with the Conventional 97?
  11. What is the maximum purchase price for a home using the Conventional 97 program?
  12. Are there occupancy requirements for the Conventional 97 mortgage program?
  13. I have a renter in my former primary residence. Can I refinance that home using Conventional 97?
  14. What is the combined loan-to-value (CLTV) limit for the Conventional 97 program?
  15. What income documentation does the Conventional 97 mortgage program require?
  16. Does the Conventional 97 program require First-Time Home Buyer counseling?
  17. Can I choose the 30-year fixed rate mortgage with the Conventional 97 program?
  18. Can I choose the 15-year fixed rate mortgage with the Conventional 97 program?
  19. Does Conventional 97 require upfront mortgage insurance, like an FHA loan?
  20. Does the Conventional 97 program require minimum credit scores?
  21. What is the Conventional 97 minimum FICO score if I am accepting a down payment gift?
  22. What is the Conventional 97 minimum FICO score if I am not accepting a down payment gift?
  23. I am bringing 3% to my closing, but am also accepting a gift to help with closing costs. What is the minimum credit score requirement in this case?
  24. Can I accept a gift of down payment from my REALTOR® or the seller?
  25. Does the Conventional 97 program enforce a maximum Debt-to-Income (DTI)?
  26. How long does it take to close with Conventional 97 financing?
  27. When does the Conventional 97 program expire?
  28. HOW DO I APPLY FOR THE CONVENTIONAL 97 PROGRAM?

Frequently Asked Questions and Answers to the new Conventional 97% Mortgage.

Is the Conventional 97 a government-backed mortgage program?

Yes, the Conventional 97 mortgage program is backed by the government. It’s offered via Fannie Mae only. The program is not available via Freddie Mac, nor is it available via the Federal Housing Administration (FHA), Department of Veterans Affairs (VA) or the U.S. Department of Agriculture (USDA).

What is the minimum down payment required with the Conventional 97 mortgage program?

The Conventional 97 program requires a 3 percent down payment, at minimum. The 3 percent minimum is based on the lower of the home’s appraised value or purchase price. 3 percent on a $200,000 home purchase is $6,000 for down payment. By comparison, an FHA mortgage would require at least $7,000 down.

Can the Down Payment be a Gift?

Yes – Personal gifts from family member, gifts or grants from a qualified entity, employer assistance, and Community Seconds® mortgages as defined in the Selling Guide are permitted for the 3% down payment. What is not permitted is contributions from interested parties such as the lender, realtor and seller.

Can the Seller Pay My Closing Costs?

Yes, the seller may pay up to 6% of the sales price towards the buyers closing costs and pre-paid items.

Is the Conventional 97 program “cheaper” than an FHA mortgage?

Yes, in many cases, the Conventional 97 program is less expensive than an FHA mortgage. This is because the Conventional 97 program does not require an upfront mortgage insurance premium, and because its annual mortgage insurance rates are cheaper, too. Mortgage rates are often comparable.

Can I use the Conventional 97 program for a mortgage refinance?

Yes, Fannie Mae allows homeowners to use the Conventional 97 program for rate-and-term refinances only. It may be used for a cash-out refinance. If you plan to use the Conventional 97 to refinance a mortgage pre-dating June 1, 2009, however, consider the HARP refinance first. HARP is a mortgage for underwater homeowners and may offer better loan terms, overall.

Click here to get started with a Conventional 97 mortgage loan

Are there property type restrictions for the Conventional 97 program?

Yes, the Conventional 97 program is property type-restricted. The program may only be used for single-family dwellings. This includes single-family detached homes, single-family attached homes, townhomes, condominiums, co-ops, and rowhomes.

Can I use the Conventional 97 for a manufactured or mobile home?

The Conventional 97 program is property type-restricted. The program may only be used for site built or site built equivalent single-family dwellings.

 

What is the maximum loan size allowed with the Conventional 97?

The Conventional 97 mortgage program is capped at a $417,000 loan size. Loan sizes for more than $417,000 are not allowed, even in designated high-cost areas such as New York City, New York; Los Angeles, California; and Montgomery County, Maryland where the local conforming mortgage loan limit is $625,500.

What is the maximum purchase price for a home using the Conventional 97 program?

There is no maximum purchase price to use the Conventional 97 mortgage program, per se, but 3 percent down on $430,000 is equal to $417,000. Therefore, if you’re seeking to minimize your out-of-pocket payments, purchase a home for $430,000 or less.

Are there occupancy requirements for the Conventional 97 mortgage program?

Yes, the Conventional 97 mortgage program enforces occupancy requirements. The Conventional 97 is available for owner-occupied properties only. You may not use the program for second homes or vacation homes; or investment properties.

I have a renter in my former primary residence. Can I refinance that home using Conventional 97?

No, the Conventional 97 program is for owner-occupied properties only.

What is the combined loan-to-value (CLTV) limit for the Conventional 97 program?

The Conventional 97 is limited to a combined loan-to-value of 97%. You may not use subordinate financing (e.g.; home equity line of credit, home equity loan, “soft second”) in conjunction with a Conventional 97 mortgage.

Click here to get Conventional 97 mortgage rates.

What income documentation does the Conventional 97 mortgage program require?

The documentation requirements for a Conventional 97 loan are the same as for any other Fannie Mae-backed mortgage. Mortgage applicants should expect to provide recent paystubs, W-2s and federal income tax returns; as well as bank statements and other relevant paperwork. There is no additional paperwork specifically related to the Conventional 97 program.

Does the Conventional 97 program require First-Time Home Buyer counseling?

At least one borrower must complete pre-purchase home-buyer education and counseling if:

  • All borrowers are first-time home buyers;
  • All borrowers are relying solely on nontraditional credit to qualify for the mortgage loan (regardless of loan product or homebuyer status); or
  • The loan LTV is above 95% up to 97% (at least one borrower must be a first-time home buyer).

All education and counseling must be provided by a third party that is independent of the lender and must adhere to the National

Industry Standards for Homeownership Education and Counseling or those of comparable quality established by other organizations

What mortgage products are available via Conventional 97?

The Conventional 97 program allows for fixed-rate mortgages only. Adjustable-rate mortgages (ARM) are not available.

Can I choose the 30-year fixed rate mortgage with the Conventional 97 program?

Yes, the 30-year fixed rate mortgage rate is available to home buyers and refinancing households using Conventional 97. Adjustable Rate Mortgages are not permitted.

Can I choose the 15-year fixed rate mortgage with the Conventional 97 program?

Yes, the 15-year fixed rate mortgage rate is available to home buyers and refinancing households using Conventional 97. ARMs are not available.

Is private mortgage insurance (PMI) required with the Conventional 97 mortgage program?

Yes, the Conventional 97 program requires that all borrowers carry mortgage insurance.

For how many years must I pay PMI via the Conventional 97 program?

The Conventional 97 program is via Fannie Mae, which means that PMI requirements follow Fannie Mae rules. Via the program, private mortgage insurance must only be paid until the home reaches 80% loan-to-value, and so long as 12 months have passed from the start of the loan.

Does Conventional 97 require upfront mortgage insurance, like an FHA loan?

No, the Conventional 97 program does not require upfront mortgage insurance premiums like an FHA loan. It only requires annual mortgage insurance, paid monthly, until such time as 12 months have passed and the home reaches 80% loan-to-value.

Does Conventional 97 require a funding fee, like an FHA loan?

No, the Conventional 97 program does not require a funding fee like a VA loan. It only requires an annual mortgage insurance premium, which is paid monthly. The annual mortgage insurance is no longer required after 12 months have passed and after the home has reached 80% loan-to-value.

Does the Conventional 97 program require minimum credit scores?

Yes, the Conventional 97 program requires a minimum credit score, which varies by down payment source. All mortgage applicants must show a credit score of 680 or better. However, mortgage applicants accepting gift funds for a down payment must show a credit score of at least 740. Your credit score is based on the middle of your three credit scores, as reported by the major credit bureaus TransUnion, Equifax and Experian.

Click here to get Conventional 97 mortgage rates.

What is the Conventional 97 minimum FICO score if I am accepting a down payment gift?

For home buyers accepting a gift of down payment of any size — even $100 — the Conventional 97 program requires a credit score of 740 or higher.

What is the Conventional 97 minimum FICO score if I am not accepting a down payment gift?

For home buyers making a down payment from their own reserves/assets, the Conventional 97 program requires a credit score of 680 or better.

Can I use the Conventional 97 program if my credit score is below 680?

No, the Conventional 97 requires a credit score of at least 680. If your credit score is below 680, consider an FHA mortgage. The FHA allows for 3.5% down payment and does not enforce a minimum credit score in many cases.

I am bringing 3% to my closing, but am also accepting a gift to help with closing costs. What is the minimum credit score requirement in this case?

For home buyers bringing at least 3% of their own funds to closing, the Conventional 97 minimum credit score requirement is 680, regardless of supplemental contributions made by parents or other family members.

Who does the Conventional 97 consider to be an acceptable “donor” for gift funds?

Conventional 97 restricts from whom a buyer can accept gift funds. Buyers can accept from a relative, which includes a spouse, child, or anyone else related by blood, marriage, adoption, or legal guardianship. Gifts may also be accepted from a fiancé/fiancée or a domestic partner.

Can I accept a gift of down payment from my REALTOR® or the seller?

No, a REALTOR® may not provide the gift of down payment, nor may any other interested party to the transaction. This includes the seller, the mortgage lender, and the title representative, among others.

Does the Conventional 97 program enforce a maximum Debt-to-Income (DTI)?

Yes, the Conventional 97 mortgage program enforces a maximum DTI, which varies by down payment “source”. Mortgage applicants making a down payment from their own funds may not exceed 45% debt-to-income via the Conventional 97 program. Mortgage applicants accepting gift funds for a down payment are limited to 41% DTI. Debt-to-income is calculated by dividing your total monthly debt obligations into your total verifiable monthly income.

How long does it take to close with Conventional 97 financing?

The Conventional 97 program takes no longer to underwrite than any other conventional mortgage. Approval times vary by lender, but are often quite quick.

When does the Conventional 97 program expire?

The Conventional 97 mortgage program does not “expire”. It’s not like the Home Affordable Refinance Program (HARP), which was created to spur housing and the economy. Fannie Mae’s 3 percent down payment program is indefinite.

My lender doesn’t offer the Conventional 97 program. What do I do?

The Conventional 97 mortgage is a specialized program and is not available through via all mortgage lenders. If you’ve been turned down for the Conventional 97 mortgage by your primary lender, just apply again here. You’ll likely find a different outcome.

HOW DO I APPLY FOR THE CONVENTIONAL 97 PROGRAM?

The Conventional 97 program is not a new program. However, it’s a decidedly cheaper option as compared to the FHA. The Federal Housing Administration has raised its mortgage insurance rates so many times that its benchmark product has moved to second place.

If you’re buying a home and plan to make a low down payment; or refinancing one and have little home equity, look to the Conventional 97 program. It’s fast, it’s cheap, and the rates are great.

Get started with a free, no-obligation Conventional 97 online mortgage rate quote. View today’s rates and see how much home you can afford. Because with lower down payments and smaller PMI, your home-buying dollar should get you much, much more.

This article was written by ricardocobos

Since relocating from Northern Michigan in 2007 I have lived in Garner (27529) with my wife Melanie and our four children. I am a local market expert in southern Wake County in the following communities: Garner (27529), Fuquay-Varina (27526), Holly-Springs (27540), Apex (27502), and Raleigh (27603) which spans from downtown Raleigh to Willow Spring including Lake Wheeler.
Call or email me, I’m here to help!

Ricardo Cobos (919) 526-0183

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