97% Financing - Fannie Mae Releases Selling Guide 1.27.15
Fannie Mae released its updated version of the Selling Guide on January 27, 2015. The majority of the changes stem from its earlier announcement to reintroduce 97% financing for single-family homes. It had previously capped the loan-to-value ratio at 95% for most of its programs.
According to the Selling Guide, to be eligible for 97% purchase financing, borrowers must be first time homebuyers (or haven’t owned a home in the past 3 years), purchasing a single-family dwelling (not a manufactured home) and it must be approved by its automated underwriting system Desktop Underwriter (DU). DU will determine the borrower’s reserve requirements* (see below). All other standard Fannie Mae loan eligibility requirements still apply.
Loans of up to 97% loan-to-value are also available for refinancing single-family, primary residence, existing Fannie Mae loans (not manufactured homes). This LTV is only available for limited cash-out refinance transactions and must be approved by DU.
97% financing will also be allowed to finance condominium units...even in Florida. However, in Florida, the condominium project must be approved through Fannie’s PERS system and the loan must be approved by DU.
Fannie also updated its policy regarding first-time buyer education courses to include the requirement for all My Community Mortgages with 97% LTVs.
The mortgage insurance coverage requirements are the same as they used to be when Fannie offered 97% financing: 35% coverage or 18% coverage for My Community Mortgages. Fannie also will accept a minimum coverage of 18% but applies a loan-level pricing adjustment to interest rate.
There are varied opinions regarding the re-introduction of 97% financing by Fannie Mae. Many will say that it was programs like this that led to the housing collapse 8 years ago. While others argue that the housing industry is again ready to sustain these programs now that the economy is getting back on its feet.
I think that any mortgage loan programs that assist responsible home purchasers to achieve their dream of homeownership are a good thing.
*Reserve requirement: "reserves" is the amount of assets a borrower has following the closing of a mortgage loan. Often, it will be required that borrowers have available to them sufficient funds after the closing to be able to make several months of mortgage payments.
Top Photo Credit: (c) Can Stock Photo / andres
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Check out our article in Common Interest magazine on page 19!