3% DOWN: A NEW MORTGAGE PROGRAM FOR 2015
There’s a new low-downpayment mortgage option available to today’s home buyers; and a lower-equity refinance available to refinancing households.
The program, which is available via Fannie Mae today, is not formally named. It’s an extension of the existing MyCommunityMortgage (MCM) program; and, in official Fannie Mae documents, is referred to as the “expanded LTV” program.
The 97% loan-to-value program is meant to help home buyers who might other qualify for a loan but lack the resources to make a five percent downpayment or more.
It’s also geared at homeowners whose homes have lost value since purchase but who are otherwise ineligible for the Home Affordable Refinance Program (HARP) because their loan start date is after May 31, 2009; or for some other reason.
The 97% LTV program is available beginning December 13, 2014. The program has no set end date.
THE 97% LTV MORTGAGE AND OTHER LOW-DOWNPAYMENT AND NO-DOWNPAYMENT MORTGAGE OPTIONS
Mortgage lenders are making it easier get approved for a mortgage.
Fannie Mae and Freddie Mac have announced a new low-downpayment mortgage program which requires just 3% down at closing, joining other government agencies in offering loans which require little or no money down.
The 97% mortgage program marks Fannie Mae and Freddie Mac’s second foray into low-downpayment lending. It’s previous program — the Conventional 97 — was discontinued in late-2013 despite popularity among first-time and repeat buyers.
The new, retooled 97% LTV program is more forgiving toward first-time buyers than was the Conventional 97; and the new program can be used for home refinances, as well, with few restrictions.
In offering a 3 percent down-payment program, Fannie Mae and Freddie Mac bring yet another financing option to today’s home buyers wanting to minimize their downpayment.
Among the most popular low-downpayment options in today’s market is the FHA loan.
FHA loans require downpayments of 3.5% and provide for flexible underwriting standards. Home buyers with less-than-perfect credit may find FHA loans to be more cost-effective than loans via Fannie Mae or Freddie Mac; and simpler for which to get approved, too.
FHA mortgage rates are typically 25 basis points (0.25%) below rates for a comparable conventional loan.
VA loans are another popular option. Available to veterans and active members of the military, VA loans allow for 100% financing and never require mortgage insurance to be paid.
VA mortgage rates are typically 37.5 basis points (0.375%) below rates for a comparable conventional loan. VA loans are backed by the Department of Veterans Affairs.
Lastly, there’s the USDA loan.
USDA loans are guaranteed by the U.S. Department of Agriculture and, although they’re sometimes called “Rural Housing Loans”, USDA loans can be used in many suburban locations, too.
USDA loans offer very low rates and allow for 100% financing. They also require just a small mortgage insurance premium as compared to other low- and no-downpayment loans.
Today’s home buyer has plenty of financing options.
3% DOWN MORTGAGE ELIGIBILITY Q&A
Is the 97% LTV loan the same program as the now-retired Conventional 97?
No, the 97% LTV is different from the Conventional 97 program, which was retired in 2013. The newer version of the 97% loan is more forgiving toward home buyers and allows homeowners to refinance to today’s mortgage rates.
Can first-time buyers use the 97% LTV program to purchase a home?
Yes. The 97 percent program can be used by first-time buyers. It can also be used by repeat buyers.
What is the definition of a “first-time home buyer”?
A first-time home buyer is defined as a person who has not owned a home in the last three years. If you previously owned a home, but have not owned a home since three years ago, you are considered to be a “first-time home buyer”.
Is the 97% program the same as the MyCommunityMortgage® program?
No, MyCommunityMortgage® is a different program. That program is aimed at certain members of the community including teachers and firefighters; and which may offer more flexible underwriting standards than a traditional mortgage program.
Are downpayments larger than 3% allowed with the 97% LTV program?
Yes, there is no limit to the size of your downpayment with the 97% LTV program. With a downpayment of five percent or more, though, you will no longer be using the 97% program.
Is the low-downpayment mortgage program via Fannie Mae and Freddie Mac better than a FHA loan?
There is no “best” low-downpayment mortgage program. What’s best for one home buyer may not be what’s best for another. Each program has its benefits.
What mortgage products are available via the 97% mortgage program?
The 97% mortgage program allows mortgage applicants to use the 30-year fixed rate mortgage only. 15-year and 20-year fixed rate mortgages are not available; nor are fixed-rate loans of other terms and ARMs.
Can I use an adjustable-rate mortgage (ARM) with the 97% program?
No, the 97% program allows mortgage applicants to use 30-year fixed rate mortgages only.
What is the loan limit on the 3% down program through Fannie Mae and Freddie Mac?
The 3% downpayment program is limited to loan sizes of $417,000 or less. Loans in high-cost areas are permitted, but loan sizes remain capped at local conforming loan limits.
What is the maximum number of units for a home under the 3% downpayment program?
The 3 percent down-payment program is for single-unit homes only. This includes single-family detached homes and single-family attached homes such as condominiums and town homes. 2-unit homes, 3-unit homes, and 4-unit homes cannot be financed via the program.
Are vacation homes eligible under the 3% downpayment program?
No, the 3% downpayment program is for primary residences only. Vacation and second homes are not allowed.
Can the 3% downpayment program be used for investment properties?
No, the 3 percent down-payment program is for primary homes only. Investment properties are not allowed.
Does the 97% LTV mortgage program require home buyers to attend home-buyer counseling?
No, there is no home-buyer counseling requirement with the 97% LTV mortgage program.
Is private mortgage insurance required with the 97% mortgage program?
Yes, mortgage applicants are required to pay private mortgage insurance (PMI) as part of the 97% mortgage program. Your mortgage lender will arrange for your mortgage insurance policy at the time of application.
Can I refinance a non-Fannie Mae loan with Fannie Mae under the 97% LTV program?
No, Fannie Mae requires loans refinanced under the 97% program to be Fannie Mae-backed.
How do I determine whether my loan is a Fannie Mae-backed loan?
To determine whether your loan is backed by Fannie Mae, you can ask your lender or use Fannie Mae’s loan lookup tool.
Are cash-out refinances allowed with the 97% mortgage program?
No, the 97% mortgage program does not allow cash-out refinances. Borrowers may do a cash-in refinance or a “limited cash-out” refinance only.