You’ve learned about the loan, but what about the loan requirements? With only slightly more strict credit requirements than its FHA counterpart, qualifying for a conventional 97 loan isn’t too different from qualifying for most conventional loans, with a few exceptions. Borrowers looking to take advantage of the program must fit the following criteria:
Must have a credit score of 620 or higher
At least one borrower must qualify as a first-time home buyer
Must have a debt-to-income ratio (DTI) of no more than 43%
Additionally, conventional 97 loans have no income limit, which is another trait that sets it apart from other low down payment loan options.
Provided that you fall within the program requirements for a Conventional 97 mortgage, qualifying is a fairly simple process. You (or someone signing on the loan) must qualify as a first-time home buyer, you have to have a qualifying credit score, and the property being purchased needs to meet program requirements. Mortgage insurance is required, but you don’t have to make an upfront premium payment as part of the closing costs on the loan so you won’t need additional funds to cover that cost.
Proof of income is required as part of the application process. Unlike with some loans, you can still qualify for a Conventional 97 loan even if you are self-employed and don’t have payroll stubs to prove your income levels. For the self-employed, at least two years of federal income tax returns are required to show consistent income amounts over the reported time period.
It can take up to a month before your loan is approved, though underwriting and final approval typically occur in 20 to 30 days. Depending on your situation, it’s possible that you may not qualify for the full 97% LTV coverage. This decision will likely be based on factors such as your credit score and income level, though it’s possible that other aspects of your situation or features of the property itself may come into consideration as well.
Is This the Same Thing as a HomeReady Loan?
Conventional 97 loans are sometimes confused with HomeReady loans, which are another low down payment mortgage product from Fannie Mae. It’s understandable, since both loans were designed to make home ownership more accessible and both feature low down payments for those who qualify. But the two are separate loan programs, with HomeReady loans targeting a slightly different segment of borrowers than Conventional 97 mortgages.
The HomeReady program is specifically aimed at helping those in the low-to-moderate income bracket to secure home financing. It also features a 97% LTV and has some of the same innovative features as the Conventional 97 such as the ability to cancel mortgage insurance once the buyer builds 20% equity. A few unique underwriting scenarios such as having income from boarders is also allowed. A mandatory homeowner education class is also required for HomeReady mortgages, though this can be done online using Fannie Mae’s online Framework tool. Only individuals who fall within the income range of the loan can qualify for a HomeReady mortgage.
Unlike HomeReady, the Conventional 97 program is open to borrowers from a wide range of incomes. If you fall within the income limits of HomeReady and meet its other qualifications, you would likely apply for this Fannie Mae product. If you don’t qualify for HomeReady, though, you can still apply for a Conventional 97 loan through Fannie Mae.