What are 97% LTV Loans?

What are 97% Loan-To-Value Mortgages

young man with arms around woman holding house keys with home in background

If you want to buy a home but have very little cash, Fannie Mae and Freddie Mac might have a solution for you. A 97% LTV loan allows you to make a down payment that’s as little as 3% of your home’s purchase price. That means these homes have an even smaller down payment requirement than FHA loans, which typically require at least 3.5% down.

Benefits of 97% LTV Loans for Homebuyers

FHA loans usually require an upfront mortgage insurance premium (MIP) of around 1.75% of the loan amount. However, 97% LTV loans do not require any mortgage insurance fees at closing. Plus, unlike FHA MIP, which cannot be canceled, PMI on 97% LTV loans can be canceled when you have at least 20% equity in your home.

3% Down Home Loan Requirements for Borrowers

While the 97% LTV loan can be an excellent option for many homebuyers, there are several important restrictions that you should be aware of:

  • The home needs to be the buyer’s primary residence

  • One of the purchasers cannot have owned a home in at least three years

  • 97% LTV loans must be fixed rate

  • The loan cannot be more than $453,100

Credit Requirements and DTI Requirements for 97% LTV Loans

Unlike FHA loans, which have an ultra-low 580 credit score requirement, 97% LTV loans have slightly higher credit score requirements, with a minimum score of 620. In addition, DTI requirements for 97% loans are also somewhat lenient, as most lenders set a maximum DTI of 43% with these types of home loans.

HomeReady 97% LTV Loans Offer Even More Flexibility

The HomeReady Mortgage Program offers another kind of 97% LTV loan from Fannie Mae-- and this one’s even more lenient, helping those with very small amounts of income to purchase a home. The HomeReady program allows borrowers:

  • To utilize income from other household members who are not borrowers to assist approval

  • To use income from renters to help you qualify

  • To use income from non-occupant co-borrowers (co-signers)

  • To get 100% of your down payment from a gift or from a down payment assistance program

  • To have a debt-to-income ratio (DTI) of 45%

In addition, the HomeReady program allows borrowers to use “cash on hand” to fund a down payment. In comparison, many traditional loans require a borrower to open a new bank account specifically for their down payment and wait 60 days before it can be paid. 

Despite their benefits, HomeReady mortgages aren’t available to everyone. If you live in a designated low-income area, there’s no income limit, but in all other areas, you can make no more than 100% of the area median income (AMI) in order to qualify for the program.

If you would like to learn more about 97% LTV loans, fill out the form below and a home loan specialist will reach out to you