The Lending Coach

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Tag: fannie mae

3% Down Payment Options with Fannie Mae and Freddie Mac

Home purchasing has just become a lot easier for a large number of potential buyers. Fannie Mae and Freddie Mac, the country’s two main mortgage giants, now have programs for home purchases with just a 3% down payment.

 

If you’re shopping for a low down payment mortgage, there are options as low as 3% down!

By the way, that’s even lower than FHA requires.

A 20% down payment is considered ideal when buying a home, but saving up that much can be a challenge.  The good news is there are a number of low down payment mortgages available today.

Many homebuyers assume they need impeccable credit scores to qualify for a loan that requires just 3% down. That’s not the case, either.

Here are some of the programs available:

Fannie Mae’s HomeReady

With its new HomeReady mortgage, the giant mortgage backer looks to help first time homebuyers and repeat buyers alike.

Here are few of the highlights of the HomeReady mortgage program:

  • As little as 3% down payment
  • Lower private mortgage insurance costs
  • Down payment sources include gifts, cash-on-hand, and down payment assistance programs.
  • Use income from non-occupant co-borrowers to qualify
  • Income from non-borrowing household members helps your approval.
  • “Boarder income” (income from a roommate) helps you qualify.

Fannie Mae’s HomeReady low down payment home loan allows for buyers to obtain loans up to $453,100 with as little as 3% down.

The borrower(s) must live in the home, so you can’t buy second homes or investment properties. You can buy two- to four-unit properties as long as you’re living in one of the units, but your down payment requirements will increase if you buy a two to four-unit property.

Income Limits for the HomeReady Mortgage

Income limits are set by geographical areas for this particular loan program. In underserved areas, there are no income limits. In more economically developed areas, Fannie Mae has limited the amount of money HomeReady applicants can make.

Essentially, this policy ensures the program is reserved for the ones who need it most. The following is a breakdown of income limits.

  • Properties in low-income census tracts: no income limit
  • Homes in high-minority areas and designated disaster areas: 100% of the area’s median income
  • Properties in any other area: 100% of the area’s median income

For instance, a home buyer in Los Angeles County finds a home within an area that limits income to 100% of the median income. The median income for Los Angeles is $67,200 so that is the most the buyer can make and still buy the home.

If the borrower makes more than this, he or she could find a home in an underserved area with no income limit. Upon a successful home search, he or she could use HomeReady.

Fannie Mae has published HomeReady eligibility maps for each state that detail each geographical area. It can be difficult to see the exact boundaries. Be sure to check the property address of the home you want to buy and your income by contacting me here….and there is a mandatory home counseling class that must be done online for a small fee.

Home Ready mortgages do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here….

For more, see Tim Lucas’ post at My Mortgage Insider

Freddie Mac’s Home Possible (and Home Possible Advantage)

Home Possible and Home Possible Advantage are two conventional loan programs created by Freddie Mac. They are affordable given their smaller 3% to 5% down payment requirement. The one that’s right for you will depend upon your income, the type property you wish to finance, and property location.

Both the Home Possible and Home Possible Advantage programs help primarily first-time home buyers. With that said, neither program restricts “move-up” buyers.

However, to use either program you cannot have an ownership interest in any other residential property.

For example, if you are a move-up buyer, you must sell your current home before taking on a Home Possible loan.

Both programs are used for purchases or refinances. In the case of refinances, no cash-outs are allowed. Refinances can only be used to change the interest rate or term, as would be the case when switching from a 30-year mortgage to a 15-year mortgage.

Home Possible Down Payments

Many mortgage programs require that some of the down payment funds come from the borrower. Home Possible mortgages allow funds from a variety of sources to help you reach the 3% to 5% down requirement. Money used for your down payment can come from:

  • Family and friends
  • Affordable seconds programs (federal, state or municipal programs that provide down payment assistance)
  • Employee assistance programs

If family and friends help you with gift funds, you and your donors will need to sign a mortgage gift letter – a legal document that states all funds are truly a gift, not a temporary loan you’d pay back.

Home Possible Income Limits

Because the Home Possible loan programs are designed for low to moderate-income borrowers, income limits apply. To be eligible for either mortgage program, your income cannot exceed the Area Median Income (AMI) where the property is located.

There are a few exceptions to the income limit guidelines. The first exception is in high-cost areas, as you’d find near big cities. In more expensive areas, higher incomes are allowed. For example, 140% of AMI will still qualify in some parts of California.

Second, there’s no borrower income limit in rural or underserved areas. The easiest way to determine your local income limits and property eligibility (e.g. underserved area) are to search using Freddie Mac’s income and property eligibility tool.

Home Possible mortgages do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here…. and there is a mandatory home counseling class that must be done online.

Conventional 97

This low down payment home loan allows for first-time buyers to obtain a loan up to $453,100 with 3% down. It must be used for a primary residence, so this loan isn’t available for a 2nd home.

The difference between this program and Fannie’s Home Ready version, is that there are NO income limits or geographic restrictions.

You can use your own funds or gift funds from a family member for the down payment, and the home must be an owner-occupied single unit home (including condos).

Conventional 97 Loan Limits

Loan limits are the maximum loan amount available to borrowers who wish to take out a mortgage. Loan limits are set by county (and sometimes at a more granular level). A price adjustment is made so that the maximum loan amount reflects average home prices surrounding the property.

Borrowers get a little more headroom to the upside when buying in a big city than rural areas. So there are two core limits outlined below: the first one applies to most counties across the United States and second one applies to big metro areas. Fannie Mae provides a search tool to find conventional loan limits by property address. Conventional 97 loan limits are as follows:

  • $453,100 in most counties
  • $679,650 in high-cost areas

Conventional 97 mortgages are 30-year fixed loans, and do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here….

As you can see, there are plenty of low down-payment options available to borrowers today please do reach out to me for more information, as it would be my pleasure to help!

Fannie Mae Eases Qualification Requirements

The country’s largest source of mortgage money, Fannie Mae, soon plans to ease its debt-to-income (DTI) requirements, opening the door to home-purchase mortgages for large numbers of new buyers.

This move by the mortgage giant will dramatically increase the number of people who will now be able to qualify for a home loan.

Per The Washington Post, “Studies by the Federal Reserve and FICO, the credit scoring company, have documented that high DTIs doom more mortgage applications — and are viewed more critically by lenders — than any other factor.”

Using data over the last 15 years, Fannie Mae’s researchers analyzed borrowers with DTIs in the 45 percent to 50 percent range and found that a significant number of them actually have good credit and are not prone to default.

Simple Definition : Debt-To-Income (DTI)

Debt-to-Income (DTI) is a lending term which describes a person’s monthly debt load as compared to their monthly gross income.

Mortgage lenders use debt-to-Income to determine whether a mortgage applicant can maintain payments a given property.

DTI is used for all purchase mortgages and for most refinance transactions.

It can be used to answer the question “How Much Home Can I Afford?

Debt-to-Income does not indicate the willingness of a person to make their monthly mortgage payment. It only measures a mortgage payment’s economic burden on a household.

Most mortgage guidelines enforce a maximum debt-to-Income limit – and Fannie Mae has essentially “upped” that ratio to help more borrowers qualify!

Housing Ratio or “Front-End Ratio”

Lenders add up your anticipated monthly mortgage payment plus other monthly costs of homeownership. These other costs of homeownership could include homeowner association (HOA) fees, property taxes, mortgage insurance, and homeowner’s insurance.

Normally, some of these expenses are included in your monthly mortgage payment. To calculate your housing ratio or front-end ratio, your lender will divide your anticipated mortgage payment and homeownership expenses by the amount of gross monthly income.

Total Debt Ratio or “Back-End Ratio”

In addition to calculating your housing ratio, lenders will also analyze your total debt ratio. At this time your other installment and revolving debts will be analyzed and added together. Installment and revolving debts will appear on your credit report.

These payments are expenses like minimum monthly credit card payments, student loan payments, alimony, child support, car payments, etc.

Your monthly installment and revolving debts are then added in addition to your estimated monthly mortgage payment and housing expenses and divide that number by your monthly gross income.

Because of these changes by Fannie Mae, many individuals that did not qualify for a home loan might now be eligible under these new regulations.

Please contact me to find out more!

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