New 3% Downpayment Option With Conventional Financing

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 instead of the previous 5% downpayment requirement. 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.

Timeline:

Effective for all loans on or after Monday December 15, 2014

Summary:

Fannie Mae will allow LTV ratios up to 97% for certain conforming loan amounts on principal residence transactions.

Why:

According to consumer research conducted by Fannie Mae, the primary barrier to homeownership for first-time home buyers is saving money for down payments and closing costs. In support of ongoing efforts to expand access to credit and support sustainable homeownership, Fannie Mae is announcing an increase in the maximum LTV, CLTV, and HCLTV ratios for certain principal residence transactions.

Key Points/Details:

  • A maximum 97% LTV will be allowed with the following:
    • MyCommunityMortgage® (MCM®) purchase transactions if at least one borrower is a first-time home buyer and pre-purchase home-buyer education and counseling is completed,
    • Standard purchase transactions (non-MCM) if at least one borrower is a first-time home buyer, or
    • Standard limited cash-out refinances (non-MCM) of existing Fannie Mae loans. Verification must be in the file that the loan was sold to Fannie Mae.
  • All loans must be fixed-rate and secured by a one-unit principal residence. High Balance, ARM loans, or Manufactured housing is not permitted.
  • All loans must be underwritten with DU.
  • In addition, for MCM loans Fannie Mae will now allow reserves to come from gifts. This applies to both manually underwritten loans and loans underwritten with DU.
  • For MCM loans, MI coverage is 18%.  For standard purchase and limited cash out transactions, MI coverage is either 35% or 18% with LLPA’s.

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