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The New 3% Down Mortgage Program: What You Need to Know

Shawn Von Talge


Fannie Mae’s new 97% loan-to-value (ltv) conventional product has arrived. What this means is that you can now qualify for a conventional product with only a 3% down payment. One of, if not the biggest, hurdles to homeownership is the required down payment, which until recently was 5% for a primary residence purchase. Fannie Mae’s goal by making this change is to promote increased homeownership among first-time homebuyers.

It’s important to note that there are two types of the 97% program available. The first one is called the “My Community Mortgage” (MCM) program and has income restrictions attached to it (of which are based on the Area Income Limit; 100% or 115% depending on several factors). The benefit of this option is the reduced private mortgage insurance (PMI) factor, which can lead to a significant reduction in the borrower’s monthly mortgage payment. The second version of the program is simply referred to as the “Non-MCM” program. The main difference between the two is that the Non-MCM program has no income limits; however, it still requires that at least one of the borrowers is a first-time homebuyer and also doesn’t come with a reduction to the borrower’s PMI rate. Typically, the term “first-time homebuyer” refers to anyone who hasn’t had an ownership interest in a property within the past 3 years. However, as this definition may not hold true in all areas or circumstances, it is best to consult a mortgage professional for additional guidance.

Here are a few additional aspects of the 97% conventional mortgage program:

✓ At least one borrower must be a first-time homebuyer to qualify
✓ A pre-purchase homebuyer education class is required with the My Community Mortgage (MCM) product
✓ Gifts funds for down payment are acceptable
✓ Owner occupied properties only
✓ Purchase transactions only

There are several other little quirks to this program but needless to say it’s exciting news and a great product should you qualify for it. To learn more about the 97% loan program you can download a copy of Fannie Mae’s Fact Sheet here:

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