In an effort to expand the number of qualified home buyers, Fannie Mae has decided to back a 97% loan to value (LTV) mortgage program for qualified borrowers. This means that buyers who don’t have a large down payment saved up will now have an easier time qualifying to buy a home, and that lending companies have more options available to help buyers get into a home.
Just like the current low-down-payment mortgages offered through FHA, there are some very specific qualifications that must be met for buyers who want to use the new 3% down mortgages. Qualified buyers must have a credit score of at least 660, although the loan scoring is flexible, and a credit score as low as 620 may be found acceptable in some cases*. Complete documentation of assets, income, and job status must also be provided. Those who qualify for the loans will be to receive homeownership financial counseling as well.
What Are the Loan Terms
Qualified borrowers will be able to get approved for a mortgage with as little as 3% down. The new 97% LTV loans are 30-year, fixed rate mortgages. The Fannie Mae program is made available to first-time homeowners. Note that If the amount of the mortgage is more than 80% of the value of the home, borrowers will also be to carry mortgage insurance for an additional fee.
How is This Different From FHA?
You may be asking yourself how this new 97% LTV program differs from the already established FHA program, which also aims to help low and moderate income home buyers to secure a mortgage. FHA loans require a minimum of 3.5% down, which is .5% higher than the new 97% LTV program. In addition, FHA loans require you to carry mortgage insurance for the entire life of the loan, but the 97% LTV program allows you to drop the insurance once your mortgage is less than 80% of the value of the home**. This can save you thousands of dollars over the life of the loan. The differences between these programs translate into more lending options overall, which will help lenders find good financing for more buyers who would not have otherwise qualified.
For more information on 3% down mortgages, as well as other home loan programs, contact an Axiom Financial mortgage consultant.
*Compensating factors may apply. **Mortgage insurance can be cancelled after the borrower’s loan to value ratio reaches 80%. Lenders are to cancel MI automatically when the LTV reaches 78%. LTV is calculated based on value of home at closing unless otherwise noted. Additional requirements apply.