The U.S. mortgage financing giants Fannie Mae and Freddie Mac announced Monday a renewed and expanded effort to expand homeownership to qualified borrowers through programs that require only 3 percent downpayments.
Both programs are mainly aimed at first-time homebuyers.
The loans must carry a fixed rate and the home must be the borrower’s primary residence. They can be used to buy a single unit property or for a “no cash out” refinance of an existing mortgage. These requirements exclude investor properties.
There are plenty of other requirements not necessarily new to borrowers who have dealt with Fannie and Freddie. These loans will have to meet Fannie and Freddie’s usual eligibility requirements, including underwriting, income documentation and risk management standards.
These loans will also require private mortgage insurance, as is the case with purchase loans acquired by the companies with greater than 80 percent loan-to-value.
Removing Barriers for the Creditworthy
“Our goal is to help additional qualified borrowers gain access to mortgages,” said Andrew Bon Salle, Fannie Mae Executive Vice President for Single Family Underwriting, Pricing and Capital Markets. “This option alone will not solve all the challenges around access to credit. Our new 97 percent LTV offering is simply one way we are working to remove barriers for creditworthy borrowers to get a mortgage. We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae and an affordable, responsible option for qualified borrowers.”
The two mortgage companies have different names for the respective low-downpayment programs.
Homebuyers can purchase a home under Fannie Mae’s standard offering, or its My Community Mortgage product with a three percent down payment if at least one co-borrower is a first-time buyer.
Freddie Mac’s Home Possible Advantage offers qualified low- and moderate-income borrowers a conforming conventional mortgage with a maximum loan-to-value ratio of 97 percent.
“Home Possible Advantage gives qualified borrowers with limited downpayment savings a responsible path to homeownership and lenders a new tool for reaching eligible working families ready to own a home of their own,” says Dave Lowman, Executive Vice President, Single-Family Business at Freddie Mac:. Home Possible Advantage is Freddie Mac’s newest effort to foster a strong and stable mortgage market.”