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Conventional 97 vs FHA: Compare Side by Side

This guide to Conventional 97 vs FHA mortgages compares two popular low-down-payment mortgage loans side-by-side. Use this comparison to decide which low-down payment mortgage choice is most suitable for your upcoming home purchase.

The Differences Between Conventional 97 and FHA Mortgages

The Conventional 97 and the FHA mortgage are low-down-payment mortgage options. Each has a rarely used official name – the 97 LTV mortgage and the FHA 203(b), respectively – but that’s where their similarities end.

Highlights: Conventional 97 Mortgage

The Conventional 97 is a low-down-payment mortgage for first-time home buyers offered by Fannie Mae. The “97” in its name is shorthand for 97% loan-to-value, reflecting the program’s minimum 3 percent down payment requirement.

Key features of the Conventional 97 mortgage include:

  • Minimum 3 percent down payment requirement
  • At least one mortgage applicant must be a first-time home buyer
  • No income limitations per household
  • 620 credit score minimum
  • Available for 1-unit homes only condos

Highlights: FHA Mortgage

FHA mortgages are mortgages backed by the Federal Housing Administration’s mortgage insurance program. More appropriately, they should be called FHA-insured mortgages because the FHA’s Mutual Mortgage Insurance Fund currently insures 7.5 million FHA mortgages against loss for their lenders.

Key FHA loan features include:

  • Minimum 3.5 percent down payment requirement
  • Available to first-time and repeat home buyers
  • No income limitations per household
  • 580 credit score minimum with flexibility to a 500 credit score
  • Available for 1-4 unit homes

Mortgage underwriting is more lenient for FHA loans than Conventional 97 mortgages, especially for home buyers with less-than-perfect credit.

Mortgages At-A-Glance

Loan FeatureConventional 97FHA
Minimum Loan Size AllowedNoneNone
Maximum Loan Size AllowedSee Loan LimitsSee Loan Limits
Maximum Household Income AllowedNo RestrictionsNo Restrictions
Minimum Credit Score Required620500
Debt-to-Income Maximum - Standard50.00%43.00%
Debt-to-Income Maximum with Compensating Factors50.00%50.00%
Minimum Downpayment Required3.00%3.50%
Maximum Loan-To-Value Allowed97.00%96.50%
Maximum Combined Loan-to-Value Allowed1.051.25
First-Time Homebuyer Education RequiredYesNo
Minimum Age AllowedMinimum Legal AgeMinimum Legal Age
Maximum Age AllowedNoneNone
First-Time Home Buyers AllowedYesYes
First-Time Home Buyers OnlyYesNo
Low-Down Payment Mortgage ClassificationYesYes
Income Verification RequiredYesYes
Military Service RequiredNoNo
States AllowedAll StatesAll States
Homeowners Insurance RequiredYesYes
Escrow Taxes & Insurance RequiredRecommendedYes

Compare Mortgage Statistics

Loan FeatureConventional 97FHA
Average Interest Rate: Last YearNot Tracked4.99%
Average Loan Size: Last YearNot Tracked$279,773
Average Approval Rate: Last YearNot Tracked75.02%
Market Share: Last YearNot Tracked17.97%
Purchase Mortgages Originated: Last YearNot Tracked887,234

Compare Mortgage Products

Loan FeatureConventional 97FHA
1-Year ARM AvailableNoYes
5-Year ARM AvailableNoYes
10-Year Fixed-Rate Mortgage AvailableYesYes
15-Year Fixed-Rate Mortgage AvailableYesYes
20-Year Fixed-Rate Mortgage AvailableYesYes
25-Year Fixed-Rate Mortgage AvailableYesYes
30-Year Fixed-Rate Mortgage AvailableYesYes
Temporary Buydowns AvailableYesRestricted

Compare Mortgage Insurance

Loan FeatureConventional 97FHA
Funding Fee / Guarantee FeeNoNo
Upfront Mortgage Insurance PremiumNoYes
Annual Mortgage Insurance PremiumNoYes
Private Mortgage InsuranceYesNo

Compare Occupancy Rules

Loan FeatureConventional 97FHA
Primary ResidenceYesYes
Second HomeYesRestricted
Vacation HomeYesNo
Investment PropertyYesNo
Non-Occupant Co-BorrowerYesYes

Compare Citizenship Rules

Loan FeatureConventional 97FHA
U.S. Citizen AllowedYesYes
Permanent Resident Alien AllowedYesYes
Non-Permanent Resident Alien AllowedYesYes
Foreign National AllowedYesYes
Buyers With Diplomatic Immunity AllowedYesYes

Compare Credit Rules

Loan FeatureConventional 97FHA
Credit Scoring ModelTri-mergeTri-merge
Non-Traditional Credit References AllowedYesYes
Deferred Student LoansLesser of 5% of balance or monthly paymentActual Payment or 0.5% of Loan Balance
Deferred Debt CalculationLesser of 5% of balance or monthly paymentLesser of 5% of balance or monthly payment
Pay Off Medical Collections Prior To ClosingNoNot Required
Pay Off Non-Medical Collections Prior To ClosingNoRequired when collections exceed $2,000
Bankruptcy, Chapter 74-year waiting period2-Year Waiting Period
Bankruptcy, Chapter 134-year waiting period1-Year From Filing
Short Sale4-year waiting period3-Year Waiting Period
Foreclosure7-year waiting period3-Year Waiting Period
Judgments & Liens AllowedMust be satisfiedMust be satified
Federal Income Tax Delinquency AllowedMust be satisfiedNo

Compare Property Rules

Loan FeatureConventional 97FHA
Minimum Square Footage AllowedNo minimumNo minimum
Maximum Square Footage AllowedNo maximumNo maximum
Single-Family Residences AllowedYesYes
Condominiums AllowedYesYes
Non-Warrantable Condominiums AllowedNoNo
Co-ops AllowedNoYes
Townhomes AllowedYesYes
2-4 Unit Homes AllowedYesYes
Manufactured Homes AllowedYesYes
Fraternity and Sorority Houses AllowedNoNo
Tiny Homes AllowedYesYes
Modular Homes AllowedYesYes
Cob Homes AllowedYesNo
Shipping Container Homes AllowedYesYes
Condotels AllowedNoNo
Bed & Breakfast AllowedYesNo
Working Farms AllowedYesNo
Working Ranches AllowedYesNo
Houseboats AllowedNoNo
Log Homes AllowedYesYes
Geodesic Homes AllowedYesNo
Timeshares AllowedNoNo
Homes with Solar Panels AllowedYesRestricted
3-D Printed Homes AllowedYesNo
Leasehold Estates AllowedYesYes
Mixed-Use Properties AllowedYesYes
Flood Zones AllowedYesOnly where insurable
Properties With More Than 20 Acres AllowedYesYes
Properties with PACE AllowedMust be subordinatedNo

Compare Ownership Rules

Loan FeatureConventional 97FHA
Inter Vivos Revocable Trust AllowedYesYes
Closing in a Corporation AllowedNoYes
Community Land Trust AllowedYesYes
Non-Profit Organizations AllowedNoYes
Municipal Government Agencies AllowedNoYes

Compare Income Rules

Loan FeatureConventional 97FHA
W-2 Income AllowedYesYes
Self-Employment Income AllowedYesYes
Investment Income AllowedYesYes
Retirement Income AllowedYesYes
Trust Income AllowedYesYes
Social Security Income AllowedYesYes
Military Income AllowedYesYes
Rental Income AllowedYesRestricted
Asset Depletion as Income AllowedYesNo
Offer Letter Income AllowedYesNo
Disability Income AllowedYesYes
Alimony and Child Support Income AllowedYesYes
Boarder Income AllowedYesRestricted
Accessory Dwelling Unit Income AllowedYesYes
Cannabis Industry Income AllowedYesNo
Automobile Allowance as Income AllowedYesYes
Housing Allowance as Income AllowedYesYes
Temporary Leave Income AllowedYesRestricted
Bank Statements as Income AllowedNoNo
Debts Paid By Others as Income AllowedYesNo

Compare Assets & Downpayment Rules

Loan FeatureConventional 97FHA
Seasoning Requirements60 days30 Days
Reserves RequiredNoNo
Cash Gift For Downpayment AllowedNoYes
Seller Concessions, Maximum3.00%6.00%
Salary Advance for Downpayment AllowedNoNo
Relocation Funds for Downpayment AllowedYesRestricted
Gift of Equity AllowedYesYes
Sweat Equity AllowedYesYes
Crypto for Downpayment AllowedYesRestricted
Cash Value For Credit Card Rewards AllowedYesNo
Cash Value For Airline Rewards AllowedYesNo

Compare Loan Traits

Loan FeatureConventional 97FHA
Assumable Mortgage AllowedNoYes
Trailing Co-Borrower AllowedYesYes
Maximum Properties Financed Allowed21
Flipped Homes AllowedYesRestricted
Arms-Length Transaction RequiredNoNo
Occupancy Deadline60 days60 days
Delayed Financing AllowedYesNo
Prepayment Penalty AllowedNoNo
Termite Inspection RequiredNoYes
Power of Attorney AllowedYesYes
Repair Allowances AllowedYesNo
Gifts From Charitable Organizations AllowedNoNo
Sources: FHFA, Fannie Mae, FHA

Important Notice For Home Buyers

This mortgage comparison between the Conventional 97 and FHA mortgages is based on current mortgage guidelines published by Fannie Mae and the FHA and is subject to change when mortgage guidelines change.

Mortgage lenders may apply lender overlays to the official mortgage guidelines, affecting mortgage underwriting and your ability to get approved.

If one lender turns down your Conventional 97 or FHA mortgage application, it does not mean that all mortgage lenders will turn down your application. Getting approved with another lender may be possible.

Consult with multiple lenders about your mortgage rates and choices.

Find Out More: Conventional 97 vs FHA Mortgages

Want to make an informed decision? Visit our comprehensive Conventional 97 and FHA mortgage guide pages. And when you’re ready to move forward, start your mortgage pre-approval at Homebuyer.com.

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This article, "Conventional 97 vs FHA: Compare Side by Side" draws on the author's professional mortgage experiences and references information found at these authoritative websites:

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       This guide to Conventional 97 vs FHA mortgages compares two popular low-down-payment mortgage loans side-by-side.

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