Conventional Loans – FANNIE AND FREDDIE Agency Loans
Fannie and Freddie are the two main institutions that purchase loans from lenders. Agency guidelines that lenders follow are established by these two agencies. Each agency does have its specific programs and will vary on what constitutes an acceptable loan based on the borrower’s specific scenario.
In general the following guidelines apply:
- Minimum down payment as little as 3% Down
- Flexible Private Mortgage Insurance (PMI) payments and may be removed once equity of property reached 22% OR borrower puts 20% Down payment.
- Debt ratios can go up to 50% Fannie and 45% Freddie
- Minimum credit score of 620 – please note that lenders use Automated Underwriting Systems (AUS) to determine eligibility. So having the minimum credit score does not guarantee eligibility. The AUS takes into account the entire scenario of the transaction – i.e. reserves, amount of down payment, credit profile, debt ratio, etc…
- Flexible PMI payments may be removed once equity of property reaches 22% OR Borrower puts down 20%
Special Affordable Housing programs offering more flexible guidelines:
HomeReady mortgage addresses common financial challenges and offers expanded eligibility guidelines, such as:
- Offering a 3% down payment option. First-time and repeat homebuyers can purchase a home with a down payment as low as 3% of the purchase price.
- Allowing co-borrower flexibility. All borrowers do not have to reside in the property. For example, parents, who won’t be living in the home, can be co-borrowers on the loan to help their children qualify for a mortgage and purchase a home. Income limits may apply.
- Accepting additional income sources. Rental payments may be considered as another allowable income source to help qualify a buyer (i.e., rental payments from a basement apartment).
- Non-occupant borrowers permitted
- Cancellable mortgage insurance (restrictions apply)
- Reduced MI coverage requirement for loan-to-value ratios above 90% (up to 97%)
Homeownership Education Requirement
HomeReady mortgage has a homeownership education requirement to help buyers prepare for the responsibilities of buying and owning a home. Buyers can complete an online homeownership course offered by Framework® to fulfill the requirement. One-on-one homeownership advising (i.e., through a HUD-approved counseling agency) may also be an option for buyers who could benefit from personalized assistance. If you seek one-on-one advising, speak with your lender beforehand to confirm that you’ll meet the HomeReady mortgage education requirement.
Extended- Income Flexibility
Extended-household living arrangements are more common among underserved populations, including low-to moderate-income, minority, and immigrant households. These households often lower incomes overall, compared with a broader population, and that may impact their access to credit – but many also are “extended-income household” or EIHs.
What is an extended-income household?
EIHs (for our purposes, limited to homeowners with a mortgage) are defined as households in which a member other than the mortgage holder or spouse has an income equal to at least 30 percent of that of the borrower(s).
Who lives in EIHs?
Among all households with a mortgage (based on 2013 data – the most recent available), 14 percent are EIHs. And, among all households with a mortgage, 25 percent of Hispanic, 20 percent of African American, and 17 percent of Asian households are EIHs with one or more adults having combined income equal to at least 30 percent of that of the borrower(s).
EIH members include adult children, parents, other relatives, domestic partners, and non-relatives.
Home Possible® Mortgage
- LTV: Maximum LTV of 97 percent; TLTV 105 percent.
- Property Options: 1-unit properties, condos and planned unit developments; manufactured homes are not eligible.
- Flexible Sources of Down Payments: Down Payment can come from a variety of sources, including family, employer-assistance programs and secondary financing. Do-it-yourselfers can apply sweat equity to assist in meeting their down payment and closing costs.
- Cancellable Mortgage Insurance: Mortgage insurance (MI) can be cancelled after loan balance drops below 80 percent of the home’s appraised value.
- Stable Mortgages: Fixed-rate mortgages with a term of up to 30 years.
- Refinance Flexibility : Purchase and no cash-out refinancing options available.
- Income Flexibility: Borrowers with incomes above AMI may be eligible in high-cost areas. No income limits in underserved areas. Use the Home Possible Income & Property Eligibility Tool to see income limits for specific properties.
- Primary Residence Only: All borrowers must occupy the property as their primary residence.
- Extended Household income: Co-borrowers who do not live in the home can be included for a borrower’s one-unit residence.
Homeownership Education Requirement – http://www.freddiemac.com/creditsmart/
There are three consumer online versions of CreditSmart:
- CreditSmart Steps to Homeownership Tutorial – With Certificate.
- CreditSmart 12-Module Financial Education Curriculum – No Certificate
- CreditSmart Military Financial Readiness
Details on each of these online CreditSmart resources are below.
CreditSmart Steps to Homeownership Tutorial – With Certificate
This CreditSmart tutorial fulfills the homebuyer education requirement for Home Possible® mortgage first-time homebuyers. Printable certificate of completion with borrower’s name is generated after successfully completing the quiz. FREE. English only. Access here.
CreditSmart 12-Module Financial Education Curriculum – No Certificate
Features 12 financial education modules that provide valuable information to help clients build and maintain better credit, make sound financial decisions and understand the steps to sustainable homeownership. FREE. Available in English and Spanish. No certificate. Access here.
CreditSmart Military Financial Readiness
Financial literacy publication for servicemembers (past and present) to help them prepare financially for deployment, avoid financial schemes that target military families and to manage their money wisely while in the military. It also takes a look at the VA home loan program. FREE. English only. Access here [PDF