Home Loan Financing

A low down payment option that is growing in popularity is the Conventional 97 mortgage. The home buyer needs only 3-percent down which means the loan-to-value (LTV) ratio is 97. This mortgage option requires the borrower to have a minimum credit score of 620.

The Conventional 97 is able to be used only for primary residences and the mortgage amount cannot surpass the current conforming limit of $484,350. The types of homes you can buy are a single family residence, condo, or townhome. Ineligible properties include investment property, second homes, and 2-4-unit residences.

The conventional 97 loan requires PMI, but depending on your credit score, the mortgage insurance could be less expensive than that of FHA. Mortgage insurance may be removed upon request to the loan servicer once you build up 22% equity. FHA mortgage insurance remains for the life of the loan. Home buyers must refinance to cancel FHA mortgage insurance.

Because conventional PMI can be canceled, buyers choose this loan, even if it is higher in price than FHA mortgage insurance. To remove mortgage insurance, you can also apply for a refinance. The conventional 97 does not allow a cash-out refinance.

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