Conventional 3% Down Payment Mortgage Program
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Conventional 3% Down Payment Mortgage Program

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience
Edited by Michael Jensen

Fannie Mae offers a conventional mortgage program that allows first-time home buyers to buy a home with a down payment as low as 3.0% of the property purchase price and with no borrower financial contribution. The program is referred to as the Fannie Mae 97% LTV Ratio program because when you make a 3% down payment to buy a home, the loan-to-value (LTV) ratio, or the amount of your mortgage divided by the value of the property, is 97%. Fannie Mae is a government-sponsored enterprise that develops mortgage programs and provides capital to lenders. Fannie Mae's mortgage programs are offered through approved lenders.

Fannie Mae's 3% Down Payment Mortgage Program represents a conventional alternative to government-backed low or no down payment programs such as the FHA, VA and USDA mortgage programs. The 97% LTV Ratio Program is similar to the Fannie Mae HomeReady Mortgage Program but has stricter borrower qualification requirements, does not have a borrower income limit and does not require pre-purchase home buyer counseling.

3% Down Payment Mortgage Program Key Considerations
  • Purchase a home with a 3% down payment and no borrower financial contribution
  • No borrower income limit
  • No upfront mortgage insurance fee
  • Applies to both home purchase mortgages and refinancings of Fannie Mae-owned mortgages
  • Higher interest rate than other no / low down payment mortgage programs
  • Requires borrower to pay private mortgage insurance (PMI) fee on a monthly basis
  • Loan limits
  • Less flexible borrower qualification requirements as compared to HomeReady and FHA mortgage programs
How the 3% Down Payment Mortgage Program Program Works

Although Fannie Mae develops and sponsors the 97% LTV Ratio Program, borrowers do not interact with Fannie Mae when they apply for a mortgage. Instead, borrowers apply for the program through approved lenders such as banks, mortgage banks, mortgage brokers and credit unions.  These approved lenders make sure that applicants meet Fannie Mae's Program eligibility guidelines and borrower qualification requirements.  The table below compares interest rates and fees for conventional loans.  Contact multiple lenders to learn about the low down payment programs they offer including the 3% Down Payment Program. 

Current Mortgage Rates in Ashburn, Virginia as of April 25, 2024
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Rate data provided by RateUpdate.com. Displayed by ICB, a division of Mortgage Research Center, NMLS #1907, Equal Housing Opportunity. Payments do not include taxes or insurance premiums. Actual payments will be greater with taxes and insurance included. Read through our lender table disclaimer for more information on rates and product details.

Borrowers can also combine a conventional 3% down mortgage with a personal gift, employer program, down payment grant, closing cost assistance program or qualified subordinated second mortgage to pay for a down payment, closing costs or property renovations, allowing the borrower to purchase a home with no personal financial contribution. Down payment and closing cost assistance grants as well as qualified subordinated second mortgages, also referred to as Community Seconds loans, are usually provided through state or local housing agencies or commissions.  Please note that Community Seconds loans typically have borrower income limits based upon the area median income (AMI) where you are buying the home but the conventional 3% Down Payment Program does not.

Conventional 3% Down Program Borrower Qualification Requirements

Borrowers must meet certain eligibility requirements to qualify for the 97% LTV Mortgage Program. We review the key qualification guidelines below.

Credit Score

Program guidelines typically require that borrowers have a minimum credit score of 680, although lower score may be permitted under certain circumstances. We recommend that you review your credit report and score six months to a year before you start the mortgage process to avoid negative surprises and address potential issues you identify with your credit profile.

Borrower Debt-to-Income Ratio

Lenders typically apply a debt-to-income ratio of 45% - 50% to determine what size mortgage a borrower can afford with the program. The debt-to-income ratio represents the maximum percentage of a borrower's monthly gross income that can be spent on total monthly housing expense plus payments for other monthly debts such as credit card, auto and student loans. Total monthly housing expense includes your monthly mortgage payment plus other housing-related expenses such as property tax, homeowners insurance and private mortgage insurance (PMI) as well as other potentially applicable expenses such as homeowners association (HOA) dues. The higher the debt-to-income ratio used by the lender, the larger the mortgage you can afford.

The debt-to-income ratio used by the conventional 3% Down Program is consistent with the debt-to-income ratio for standard mortgage programs but higher than the debt-to-income ratio used by many other low or no down payment programs, although the HomeReady and FHA Mortgage programs permit a debt-to-income ratio of 50% or higher under certain circumstances. Using a higher debt-to-income ratio increases what size loan you qualify for using the 97% LTV Program.

First-Time Home Buyers Only

At least one of the borrowers must be a first-time home buyer which means that you have not had an ownership interest in a property in the last three years.  Please note that the first-time home buyer requirement does not apply to borrowers using the 3% Down Payment Mortgage Program to refinance an existing mortgage that is owned or guaranteed by Fannie Mae.

Borrower Income Limit

Unlike many other no or low down payment mortgage programs, the 97% LTV Mortgage Program does not apply borrower income limits.

Home Buyer Counseling Class

3% Down Payment Mortgage Program applicants are not required to take a home buyer education class although Fannie Mae recommends that applicants complete a counseling class to prepare for getting a mortgage and owning a home.

Borrower Financial Reserves

Depending on your credit score, loan-to-value ratio (LTV) and other factors the 97% LTV Program may require that borrowers keep a certain level of savings in reserve at the time the mortgage closes.  Be sure to check with your lender to understand how the borrower reserve requirements apply to you as you may need additional funds to qualify for your loan.  FREEandCLEAR recommends that you hold enough savings in reserve to cover three-to-six months of total monthly housing expense.  For example, if your total monthly housing expense is $2,000, you would keep at least $6,000 in reserves at the time your mortgage closes.

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Program Costs and Fees

Mortgage Rate

The interest rate you pay on a conventional 3% down mortgage depends on several factors including your credit score and loan-to-value (LTV) ratio.  Borrowers with higher credit scores and lower LTV ratios receive the program’s best interest rate while borrowers with lower credit scores and higher LTV ratios pay higher interest rates.  The mortgage rate for a 97% LTV mortgage is usually higher than similar conventional and government-backed no and low down payment programs including the FHA, VA and USDA mortgage programs. Borrowers should shop multiple lenders to find the low down payment mortgage mortgage with the lowest interest rate and fees.

Private Mortgage Insurance (PMI)

The 97% LTV / 3% Down Payment Program requires that borrowers pay private mortgage insurance (PMI), which is an ongoing monthly cost in addition to your monthly mortgage payment. In short, PMI protects the lender in the event that the borrower defaults on the mortgage. The amount of PMI the borrower is required to pay depends on the borrower’s credit score and loan-to-value (LTV) ratio, with the higher the LTV ratio, the higher the required PMI.

Most conventional low down payment programs require borrowers to pay PMI while the FHA and USDA Mortgage programs require borrowers to pay both an upfront and ongoing mortgage insurance premium (MIP). The conventional 3% Down Mortgage Program does not require borrowers to pay an upfront PMI fee and the monthly PMI fee is removed when your LTV ratio falls below 78%.

Extra Fees

Borrowers are required to pay standard lender fees and closing costs with the program and are not required to pay additional fees to apply for the program.  Borrowers using a down payment or closing cost assistance program may be required to pay a separate fee to the housing agency or commission to apply for that program.

Impound Account

Along with their mortgage payment, the conventional 3% Down Mortgage Program requires borrowers to pay property tax, homeowners insurance and private mortgage insurance (PMI) into an impound account on a monthly basis.  An impound account is a trust account controlled by the lender from which expenses such as taxes and insurance are paid when due. The impound account does not affect the amount of fees the borrower is required to pay for the mortgage.

Use the FREEandCLEAR Lender Directory to search twenty-five mortgage programs including conventional and government-backed low down payment programs.


Mortgage Type and Loan Amount

Mortgage Program

Only fixed rate mortgages are permitted according to Fannie Mae guidelines. Adjustable rate mortgages (ARM) and interest only mortgages are not allowed.

Maximum Loan-to-Value (LTV) Ratio

Living up to its name, the maximum loan-to-value (LTV) ratio for the first mortgage  according to program guidelines is 97%.   This means that for a property valued at $100,000, the maximum first mortgage loan amount is $97,000 ($100,000 (property value) * 97% (LTV ratio) = $97,000 maximum first mortgage amount).

For borrowers combining a 3% down payment mortgage with a Community Seconds loan, the combined loan-to-value (CLTV) ratio of the first mortgage plus the second mortgage can be up to 105%. CLTV equals the sum of the amounts of all the mortgages on a property divided by the fair market value of the property. For example, if the property purchase price is $100,000 a qualified borrower can obtain a 97% LTV ratio mortgage plus a Community Seconds loan for a total loan amount of $105,000. The borrower can use $100,000 from the two mortgages to purchase the property and $5,000 to pay for closing costs or renovations. In this example, the CLTV ratio is 105% ($105,000 (combined loan amount) / $100,000 (property value) = 105% combined loan-to-value ratio).

Loan Limit

The program only applies to conforming loan amounts ($726,200 or below for a single unit property in most counties) which limits the size of mortgage you can obtain.

Mortgage Type

The conventional 3% Down Payment Program applies to both home purchase mortgages as well as refinances. You can use the program to refinance your mortgage which helps borrowers who have limited equity in their homes refinance into a new, potentially more affordable mortgage. The program only applies to existing loans that are owned by Fannie Mae. In certain situations, the program allows the borrower to take a limited amount of cash out when refinancing.

Property Eligibility

The 3% Down Payment Program only applies to single-unit, owner-occupied principal residences.  Second, vacation and manufactured homes as well as multi-unit and non-owner occupied properties are not allowed under program guidelines.

Related FREEandCLEAR Resources


"97% Loan to Value Options."  Mortgage Products.  Fannie Mae, 2022.  Web.

About the author
Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR.  Harry is a licensed mortgage professional (NMLS #236752). More about Harry

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