HomeReady vs. Conventional 97 in Austin: Two Ways to Put 3% Down
Team Price Real Estate’s July 23, 2026 report put the median sold price in the Austin area at $445,000. At that price, a 20% down payment is $89,000. A 3% down payment is $13,350. That gap explains why two Fannie Mae conventional programs, HomeReady and Conventional 97, come up in almost every first conversation we have with Austin buyers who have steady income but not six figures in savings.
The two programs look identical from a distance: both are conventional loans, both allow 3% down on a single-family primary residence, and both cancel their mortgage insurance eventually. The differences sit in the fine print, and picking the wrong door can cost you real money every month. Here is how they actually compare, in plain language.
Key points:
- Both programs allow 3% down on a one-unit primary residence, which is $13,350 at Austin’s $445,000 median (Team Price, July 23, 2026).
- HomeReady caps your qualifying income at 80% of the area median income for the property’s location. Conventional 97 has no income limit.
- Conventional 97 requires at least one borrower to be a first-time buyer, defined as not owning a home in the past three years. HomeReady does not.
- HomeReady carries reduced mortgage insurance coverage requirements, which often translates to a lower monthly PMI premium.
- On a $431,650 loan, a PMI rate difference of 0.2 to 0.4 percentage points is roughly $72 to $144 a month.
- Gift funds can cover the entire 3% down payment on either program for a one-unit primary residence.
What is the difference between HomeReady and Conventional 97?
Both are Fannie Mae conventional loans that allow 3% down on a one-unit primary residence. HomeReady is income-restricted: your qualifying income must be at or below 80% of the area median income where the home sits, and in exchange you get reduced mortgage insurance coverage requirements and capped pricing adjustments. Conventional 97 has no income limit but requires that at least one borrower be a first-time homebuyer.
Think of them as two doors into the same 3%-down house. HomeReady is the door for buyers under the income cap, whether or not they have owned before. Conventional 97 is the door for first-time buyers whose income is too high for HomeReady. Plenty of Austin buyers qualify for both, and in that case the monthly-cost math below decides it.
Freddie Mac runs parallel versions of each: Home Possible (income-capped, like HomeReady) and HomeOne (first-time buyer, no income cap, like Conventional 97). A conventional loan quote worth taking seriously should check both agencies’ pricing for your file.
Who qualifies for HomeReady in Austin?
HomeReady requires qualifying income at or below 80% of the area median income for the property’s census location, a credit score that generally starts at 620, and a one-unit primary residence at 3% down. First-time buyer status is not required. When every borrower on the loan is a first-time buyer, at least one must complete a homeownership education course, and Fannie Mae’s HomeView course satisfies it at no cost.
The income cap moves with the area, so do not guess yourself out of the program. The number that counts is the qualifying income on the application, checked against Fannie Mae’s Area Median Income Lookup Tool for the specific address. A buyer shopping in Hutto can face a different cap math than one shopping in central Austin, and a raise that lands mid-application can change the answer. Ask your lender to run the address before you rule it in or out.
Two HomeReady features surprise people in a good way. Rental income from a boarder who has lived with you can count toward qualifying under documented conditions, and non-occupant co-borrowers (a parent, for example) are allowed within program limits. Neither is standard on a plain Conventional 97 at 97% financing.
Does Conventional 97 have an income limit?
No. Conventional 97 has no income cap at all. Its gate is different: at least one borrower must be a first-time homebuyer, which Fannie Mae defines as someone who has not owned a residential property in the previous three years. A previous owner who sold four years ago counts as first-time again under that definition.
That makes Conventional 97 the natural fit for Austin’s high-earning first-time buyers: the tech couple with strong salaries and modest savings, or the recent graduate whose income cleared the HomeReady cap in year one. The loan amount must stay within the conforming limit, which is $832,750 for 2026 (FHFA), and a median-priced Austin home fits under it with room to spare.
How does the PMI compare between the two?
This is where HomeReady earns its keep. Loans above 90% loan-to-value normally require 35% mortgage insurance coverage; HomeReady requires only 25% coverage on the same loan. Less coverage means the insurer charges less, so a HomeReady borrower typically pays a lower monthly PMI premium than the same borrower on a Conventional 97, sometimes by a wide margin at lower credit scores.
Fannie Mae also caps its risk-based pricing adjustments on HomeReady loans, and many first-time buyers under the income thresholds see those adjustments waived entirely. Pricing rules shift over time, so the practical move is simple: have your lender print both quotes side by side, same rate lock day, same everything except the program.
The scale of the difference is easy to underestimate. On a $431,650 loan (3% down at the Austin median), a PMI rate that is 0.2 to 0.4 percentage points lower saves roughly $72 to $144 every month. Either way the insurance is temporary; once you build enough equity you can pursue every PMI removal path available on conventional loans, and it cancels automatically at 78% loan-to-value on schedule.
Which one costs less each month?
For buyers who qualify for both, HomeReady usually wins on monthly cost because of the cheaper mortgage insurance and capped pricing adjustments. For buyers over the income cap, the comparison is moot and Conventional 97 wins by default. The honest answer runs through your credit score, since PMI pricing punishes thin credit harder on the standard program.
Here is the illustrative math at the Austin median. Buy at $445,000 with 3% down ($13,350) and you finance $431,650. At 6.66%, the average 30-year rate reported by Freddie Mac’s Primary Mortgage Market Survey for the week ending July 30, 2026, principal and interest comes to about $2,774 a month before taxes, insurance, and PMI. That rate is a national survey average, illustrative only; your quote depends on your file, and current levels move weekly on our Austin mortgage rates page.
Stack the PMI difference on top and the program choice can matter as much as a modest rate improvement. Saving $100 a month in PMI has the same budget effect as knocking a meaningful slice off your rate, and it required no discount points, only picking the right door.
HomeReady vs. Conventional 97 at a glance
| Feature | HomeReady | Conventional 97 |
|---|---|---|
| Minimum down payment | 3% | 3% |
| Income limit | 80% of area median income | None |
| First-time buyer required | No | Yes, at least one borrower |
| Homebuyer education | Required if all borrowers are first-timers (free HomeView course) | Not required |
| Mortgage insurance coverage | Reduced (25% above 90% LTV) | Standard (35% above 90% LTV) |
| Pricing adjustments | Capped, often waived under income thresholds | Standard, waivers possible for some first-time buyers |
| Boarder income / non-occupant co-borrower | Allowed within program rules | Generally not at 97% financing |
| Property | One-unit primary residence at 3% down | One-unit primary residence |
How should an Austin buyer choose?
Start with the income check. Run the property address through the Area Median Income Lookup Tool, or have your lender do it in thirty seconds. Under the cap, price both programs and let the PMI quotes decide; over the cap, confirm at least one borrower passes the three-year first-time test and take Conventional 97.
Then pressure-test the down payment plan. Both programs accept gift funds for the full 3% on a one-unit primary residence, but the documentation rules are unforgiving, and sloppy transfers cause more last-minute problems than the programs themselves. If family money is part of your plan, read up on the gift fund mistakes Austin buyers make before anyone moves a dollar.
At Mortgage Austin we run this comparison for buyers weekly, and the result flips more often than you would expect. A borrower who assumed they were a Conventional 97 file discovers the duplex they grew up in fell off their record three years ago, or a raise pushes a HomeReady file over the cap between pre-approval and contract. The programs are stable; your file is the moving part. Subject to credit, income, and property qualification, either door can get you into a home for 3% down.
Frequently Asked Questions
Can gift money cover the whole 3% down payment?
Yes. On a one-unit primary residence, both HomeReady and Conventional 97 allow the entire 3% down payment to come from an eligible gift, typically from a family member. The gift must be documented with a signed gift letter and a clear paper trail of the transfer. At Austin’s $445,000 median price, that means a $13,350 gift can fund the full down payment.
Do I have to be a first-time buyer to put 3% down?
Not necessarily. Conventional 97 requires at least one borrower to be a first-time buyer, defined as not owning a home in the past three years. HomeReady has no first-time requirement at all; its gate is the 80% area median income cap. A repeat buyer under the income cap can still put 3% down through HomeReady.
What credit score do I need for a 3% down conventional loan?
Both programs generally start at a 620 credit score, subject to automated underwriting approval. Pricing improves as scores rise, and PMI premiums drop noticeably in the mid-700s. A higher score helps more on Conventional 97 because its mortgage insurance is priced at standard coverage levels, while HomeReady’s reduced coverage softens the penalty at lower scores.
Is 3% down conventional better than FHA in Austin?
Often, but not always. FHA takes 3.5% down and its mortgage insurance usually runs for the life of the loan when you put less than 10% down, while conventional PMI cancels once you reach enough equity. Buyers with scores in the low 600s sometimes price out better on FHA. The right answer comes from comparing both quotes on your actual file.
Does HomeReady count my co-borrower’s income against the limit?
The 80% area median income cap applies to the qualifying income of the borrowers on the loan. Income from a non-occupant co-borrower and documented boarder income are handled under specific program rules, so the details matter. Have a lender run the exact borrower mix through the Area Median Income Lookup Tool for the property address before assuming you are over or under the cap.
Does the HomeReady homebuyer course cost money?
No. Fannie Mae’s HomeView course is free, online, and self-paced, and it satisfies the HomeReady education requirement. The course is only mandatory when every borrower on the loan is a first-time buyer, and most people finish it in a few hours. You receive a certificate your lender keeps in the loan file.
Not sure which door is yours? Schedule a discovery call and we’ll run the income lookup, price both programs on your actual file, and walk through the numbers together. No pressure, no commitment, just clarity.
Ferrando Financial LLC | NMLS# 2403080 | Licensed in Texas. This content is for educational purposes only and does not constitute a commitment to lend. Loan approval is subject to credit, income, and property qualification. Rates and program guidelines change; the figures above are illustrative, not a quote or an offer of credit. Sources: Team Price Real Estate market report (July 23, 2026), Freddie Mac Primary Mortgage Market Survey (week ending July 30, 2026), FHFA 2026 conforming loan limits, Fannie Mae HomeReady and 97% LTV program guidelines.
