A conventional 97 loan is a conventional mortgage for 97% of the home's price, so you put 3% down. There are four main versions: Fannie Mae's standard 97% LTV loan and Freddie Mac's HomeOne, which require at least one first-time homebuyer, and Fannie Mae's HomeReady and Freddie Mac's Home Possible, which have income limits of 80% of area median income instead. At 97%, the home has to be a one-unit primary residence, and the first three require a fixed-rate loan.
I'm Taylor Ring, a Mortgage Loan Officer with Fairway Independent Mortgage Corporation (The Wood Group) in Belton. When buyers in Killeen, Temple, and Round Rock tell me they want to put 3% down, the next question is which 3% loan fits, because the rules on income, first-time status, mortgage insurance, and down payment assistance are different for each one. This guide lays them side by side using Fannie Mae's Selling Guide and Eligibility Matrix and Freddie Mac's product pages, read October 26, 2026.
Want to know which 3% option fits you? Get Pre-Approved or Book a Free Consultation.
The Four Conventional 97 Options Side by Side
| Fannie Mae standard 97% LTV | Fannie Mae HomeReady | Freddie Mac HomeOne | Freddie Mac Home Possible | |
|---|---|---|---|---|
| Who it's for | At least one first-time homebuyer | Low-income borrowers, first-time or repeat | At least one first-time homebuyer | Low- and very low-income borrowers |
| Income limit | None | 80% of area median income | None | 80% of area median income |
| Maximum LTV | 97% | 97% | 97% | 97% (1-unit) |
| With a DPA second | CLTV up to 105% with Community Seconds | CLTV up to 105% with Community Seconds | TLTV up to 105% with Affordable Seconds | TLTV up to 105% with Affordable Seconds |
| Loan type above 95% | Fixed rate, up to 30 years | Fixed rate, up to 30 years | Fixed rate only | Not stated on Freddie Mac's product page |
| Property at 97% | One-unit principal residence | One-unit principal residence | One-unit primary residence | 1-unit (97% HTLTV listed for 1-unit) |
| Mortgage insurance above 95% | 35% standard coverage (fixed, over 20 years) | 25% coverage | 35% standard coverage | Reduced coverage above 90% LTV |
| Underwriting | Desktop Underwriter (DU) only | DU only above 95% | Loan Product Advisor Accept only | Loan Product Advisor |
Sources: Fannie Mae Selling Guide B2-1.3-01, B5-6-01, and B7-1-02, the Fannie Mae Eligibility Matrix dated August 5, 2026, and Freddie Mac's HomeOne and Home Possible pages.
The short version:
- If you're a first-time buyer with income above the 80% AMI limit, look at Fannie Mae's standard 97% LTV loan or Freddie Mac HomeOne.
- If your income is at or below 80% of AMI, HomeReady or Home Possible may be worth comparing, and neither requires you to be a first-time buyer.
- If you've owned a home in the last three years and your income is above the limits, a 97% conventional loan usually isn't available. Fannie Mae's matrix tops out at 95% for a one-unit purchase in that case, which means 5% down.
Who Counts as a First-Time Homebuyer?
For Fannie Mae's standard 97% loan, at least one borrower must be a first-time homebuyer, which the Selling Guide ties to the loan application: a borrower who hasn't had an ownership interest in a property in the last three years. So a buyer who sold a home four years ago and has rented since can count.
Two details people miss:
- Only one borrower has to qualify. If you're buying with a spouse who owned a home recently, the loan can still work if you haven't.
- Community Seconds change the rule. Fannie Mae's Eligibility Matrix says the first-time buyer requirement applies to non-HomeReady purchases without a Community Seconds loan. If an eligible down payment assistance second is part of the deal, ask me how the rule applies to your file.
Rules That Apply at 97%
Fannie Mae's Selling Guide lists the same core limits for its standard 97% loan and for HomeReady above 95% LTV:
- One-unit principal residence. No two- to four-unit homes, second homes, or rentals at 97%.
- Fixed-rate loans with terms up to 30 years. Adjustable-rate mortgages aren't allowed above 95%.
- No high-balance loans. The loan has to fit within the standard conforming limit.
- No manufactured homes unless the home meets Fannie Mae's MH Advantage requirements. Freddie Mac's HomeOne similarly excludes manufactured homes unless the home is a CHOICEHome.
- All borrowers must live in the home, unless there's a Community Seconds subordinate lien.
- Automated underwriting only. Fannie Mae requires Desktop Underwriter, and Freddie Mac's HomeOne requires a Loan Product Advisor Accept.
- Reserves are set by DU rather than a fixed number of months.
Credit Score
Fannie Mae's Selling Guide says a minimum credit score isn't required for DU loan casefiles; DU weighs credit along with the other risk factors in the file. Manually underwritten loans use 620 for fixed-rate loans, but 97% loans can't be manually underwritten. Lenders can also set their own requirements, so I'll tell you up front what applies to your file.
Homeownership Education
If every borrower is a first-time homebuyer and the LTV is above 95%, at least one borrower must complete a homeownership education course before closing. HomeReady requires it whenever all occupying borrowers are first-time buyers, at any LTV, and Freddie Mac's HomeOne requires it when all borrowers are first-time buyers. Fannie Mae accepts courses from providers that are independent of the lender, delivered in person, online, by phone, or in a hybrid format.
Where the 3% Can Come From
You don't have to save every dollar of the 3% yourself:
- Gifts. For a one-unit principal residence, Fannie Mae requires no minimum contribution from your own funds; all of the money needed can come from an acceptable gift.
- Down payment assistance. Fannie Mae allows a combined loan-to-value up to 105% when the second is a Community Seconds loan, and Freddie Mac allows up to 105% TLTV with Affordable Seconds. In Texas, that's where programs like My First Texas Home (TDHCA) and Home Sweet Texas (TSAHC) come in. Fairway is a participating lender for both. See down payment assistance in Texas for the overview.
- Freddie Mac Home Possible lists down payment sources including family, employer-assistance programs, secondary financing, and sweat equity.
Seller Concessions at 97%
Seller help toward closing costs is allowed, but Fannie Mae caps financing concessions at 3% of the lower of the sales price or appraised value when the LTV or CLTV is above 90%. That cap is lower than the 6% allowed from 75.01% to 90%. Seller money can't be used for your down payment. My seller closing costs in Texas guide covers how those credits are negotiated.
Hypothetical 3% Down Example
| Item | Amount |
|---|---|
| Purchase price | $300,000 |
| Down payment (3%) | $9,000 |
| Loan amount (97% LTV) | $291,000 |
| Maximum seller financing concession at 97% (3% of price) | $9,000 |
Hypothetical numbers to show the structure, not a quote or an offer of credit. Closing costs, rates, mortgage insurance premiums, and payments are not shown.
Remember that the down payment isn't your only cash need. My closing costs in Texas guide covers the rest.
Mortgage Insurance on a Conventional 97 Loan
Any conventional loan above 80% LTV needs mortgage insurance, and at 97% the required coverage level is the highest. Fannie Mae's Selling Guide sets standard coverage at 35% for 95.01% to 97% LTV on a fixed-rate loan over 20 years, and 25% for HomeReady at the same LTV. Freddie Mac's HomeOne page lists standard 35% coverage above 95%, and Home Possible lists reduced coverage for LTVs above 90%.
Coverage is the share of the loan the insurer covers, not your premium. Your actual premium depends on factors like your credit and loan details, so I quote it from your file rather than guessing.
The good part: conventional mortgage insurance can come off. Under federal rules, borrower-paid PMI on most conventional loans can be canceled at your request once you reach 80% of the original value and ends automatically at 78% if you're current. Freddie Mac notes Home Possible MI can be canceled once the balance drops below 80% of the appraised value and the cancellation criteria are met. My how to remove PMI guide explains the steps.
Conventional 97 vs. FHA
The comparison most buyers make is 3% conventional versus 3.5% FHA. I cover it in detail in FHA vs. conventional loans in Texas, but the quick view:
- Down payment: 3% conventional versus 3.5% FHA.
- Mortgage insurance: conventional PMI can be removed under the rules above; FHA has an upfront premium and an annual premium with their own rules. See my FHA mortgage insurance guide.
- Who qualifies: the 97% conventional options have first-time buyer or income limits; FHA doesn't use either test.
- Credit and DTI: each program weighs them differently, so I run both. My debt-to-income guide explains the ratio.
For the general conventional loan overview, including second homes and investment properties, see my conventional loans page.
A Central Texas Example: Keeping Savings Intact
A buyer in Temple had savings but didn't want to drain them on a down payment. We compared low-down-payment loan options, possible assistance, and seller credits side by side, looking at the monthly payment, interest rate, cash needed to close, and any repayment terms. The goal was a balance that kept a healthy cushion for life after move-in day.
Illustrative scenario, not an actual client transaction. Seller credits are subject to negotiation and loan guidelines.
How to Get Ready for a Conventional 97 Loan
- Check your first-time status for each borrower: any ownership interest in the last three years?
- Check your income against the AMI limit for the property's location if you're considering HomeReady or Home Possible. I can look this up for any address.
- Line up your 3%, including any gift letters or down payment assistance.
- Plan for the homeownership course if every borrower is a first-time buyer.
- Get a preapproval so we know which option DU or LPA supports. My mortgage preapproval guide walks through what to bring.
Frequently Asked Questions
What is a conventional 97 loan?
A conventional 97 loan is a conventional mortgage for 97 percent of the home's price, which means a 3 percent down payment. Fannie Mae offers it as a standard 97 percent LTV loan and through HomeReady, and Freddie Mac offers it through HomeOne and Home Possible. Each has its own rules on first-time buyer status, income, and mortgage insurance.
Do I have to be a first-time homebuyer for a conventional 97 loan?
For Fannie Mae's standard 97 percent loan and Freddie Mac's HomeOne, at least one borrower must be a first-time homebuyer, meaning no ownership interest in a property in the last three years. HomeReady and Home Possible do not require first-time buyer status, but qualifying income is limited to 80 percent of the area median income.
Can I use down payment assistance with a conventional 97 loan?
Yes, if the assistance meets Fannie Mae or Freddie Mac rules. Fannie Mae allows a combined loan-to-value up to 105 percent with a Community Seconds loan, and Freddie Mac allows up to 105 percent with an Affordable Second. In Texas that can include TDHCA and TSAHC programs, and Fairway is a participating lender for both.
Can a conventional 97 loan be an adjustable-rate mortgage?
Not above 95 percent loan-to-value under Fannie Mae's rules. Its standard 97 percent loan and HomeReady loans above 95 percent must be fixed-rate loans with terms up to 30 years, and Freddie Mac's HomeOne is fixed-rate only. The home must also be a one-unit principal residence.
Does a conventional 97 loan have mortgage insurance?
Yes. Any conventional loan above 80 percent loan-to-value needs mortgage insurance. Fannie Mae's standard coverage for 95.01 to 97 percent LTV is 35 percent on a fixed-rate loan over 20 years and 25 percent for HomeReady. Conventional mortgage insurance can be canceled later once you meet the cancellation rules.
Ready to Compare Your 3% Down Options?
I'll check your first-time status, income limits, and assistance options and show you which conventional 97 version fits, side by side with FHA.
Get Pre-Approved | Book a Free Consultation
Related Guides
- Conventional Loans in Texas
- FHA vs. Conventional Loans in Texas
- How to Remove PMI
- Down Payment Assistance in Texas
- My First Texas Home Program
- Home Sweet Texas Home Loan Program
- Texas First-Time Home Buyer Programs
Sources
- Fannie Mae Selling Guide: B2-1.3-01, Purchase Transactions, B5-6-01, HomeReady Loan and Borrower Eligibility, B5-6-02, HomeReady Underwriting, B2-2-06, Homeownership Education, B3-4.1-02, Interested Party Contributions, B3-4.3-04, Personal Gifts, B3-5.1-01, Credit Scores, and B7-1-02, Mortgage Insurance Coverage
- Fannie Mae Eligibility Matrix (August 5, 2026) and HomeReady Mortgage page
- Freddie Mac HomeOne and Home Possible
Taylor Ring, NMLS #2809683 | Fairway Independent Mortgage Corporation, NMLS #2289 | The Wood Group of Fairway, 127 Lake Rd Ste 300, Belton, TX 76513 | Equal Housing Opportunity. This is not a commitment to lend. All loans are subject to credit approval and program guidelines, and approval, rates, and program availability are not guaranteed. This article is general information, not legal or tax advice. Fannie Mae and Freddie Mac program rules change; eligibility is determined by current guidelines and automated underwriting. Not affiliated with or endorsed by Fannie Mae, Freddie Mac, or any government agency.