FHA Condo Approval Specialist: 97% Financing - Fannie Mae Releases Selling Guide 1.27.15

97% Financing - Fannie Mae Releases Selling Guide 1.27.15

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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Comment balloon 19 commentsReadySetLoan Condo Approval Team • January 29 2015 07:13AM


I'm glad to see they are bringing some of these lower down payment programs back.  It was pretty difficult for a while unless you went FHA. 

Posted by Rob Arnold, Metro Orlando Full Service - Investor Friendly & F (Sand Dollar Realty Group, Inc.) about 4 years ago

Good morning Eric. It would be a little surprising to me if the 97% Fannie program gets much traction. I hardly ever used it, when it was around before, not much will change. By the time you run the math of rate and payment, it is not very attractive.

Posted by Joe Petrowsky, Your Mortgage Consultant for Life (Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709) about 4 years ago

Another options for potential borrowers, more opportunity for them to have the just right loan for them.

Posted by Jon Sigler, South Windsor Homes for Sale 860-306-8029 (Keller Williams - Greater Hartford) about 4 years ago

This is a great way for first time buyers to get started.  Even if the loan has some drawbacks, it's a way to get them to the first home.  They can always sell and move on to newer, bigger, better with a conventional loan.  I think that's the idea, not something to stick with for the long term.

Posted by Kate McQueen, Tailored service for your real estate needs! (CB&A Realtors) about 4 years ago

It's great to see the relaxing of lending requirements. 2015 should be active !

Posted by Michael J. Perry, Lancaster, PA Relo Specialist (KW Elite ) about 4 years ago

So glad to see financing that more people can use to buy a home. Restrictions were just ridiculous for way too long!

Posted by Margaret Woda, Maryland Real Estate & Military Relocation (Long & Foster Real Estate, Inc.) about 4 years ago

Need to continue to get back to where all that deserve home ownership can accomplish that feat...

Posted by Mike McCann - Nebraska Farm Land Broker, Farm Land For Sale 308-627-3700 or 800-241-3940 (Mike McCann - Broker, Mach1 Realty Farmland Broker-Auctioneer Serving Rural Nebraska) about 4 years ago

Eric another important change was that Fannie no longer requires 5% to be the Borrows own funds unless gift money was 20%.  Now none of the downpayment needs to be the borrowers own funds regardless of the amount of the the downpayment.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) about 4 years ago

I am hoping that these changes will be of benefit to buyers.  

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) about 4 years ago

I hope that the program serves its purpose to help more folks own homes, Rob

Hi Joe Petrowsky - I didn't use this program much either when I wrote loans.  The mortgage insurance and interest rate bumps made it less appealing than FHA.  But at 97%, that is a high risk loan.

Thank you for reading Jon Sigler .  This should help more folks get into homes.

Hi Kate - this is a conventional loan product.  There is no doubt there are some drawbacks but it should be a decent program to compete with FHA.

Michael - I hope that 2015 is very active for real estate agents and mortgage professionals.

Hi Margaret Woda I would expect to see more loosening of lending guidelines in the very near future...maybe even the slight return of subprime

Hi Mike - I agree that all who can afford to pay a mortgage loan to own a home should be able to do so.

You're killin' me George Souto !  I could have also written about concurrent servicing transfers or the changes in how to enter net rental income in DU.  I focused on the 97% financing because of the competition that it poses to FHA with such a program.

Hi Joan Whitebook - I think that this program will be a competitor to the FHA program.   Folks will have to weigh the options between the two.

Posted by ReadySetLoan Condo Approval Team, The FHA/VA Condo Project Approval Specialists (ReadySetLoan Condo Team LLC) about 4 years ago

Low down payments are nice, but when monthly payments are too high it doesn't help home ownership. I'd rather have programs for people to be able to save down payments and get into education programs - would minimize defaults and encourage better money management.

Posted by RVA HomePRO Michael Hottman, Helping you achieve goals in life & real estate (RVA HomePRO Realtor with Keller Williams serving Hanover, Henrico, Chesterfiled and Richmond, Virginia) about 4 years ago

Hi Eric.  Is PMI involved?  Thanks.

Posted by Conrad Allen, Webster, Ma, Realtor (Re/Max Professional Associates) about 4 years ago

Great information.  Buyers need options and this might help loosen up the first time home buyer niche .



Posted by Kim Boekholder Utah Real Estate, Broker, Results Real Estate (Results Real Estate 801.580.5624) about 4 years ago

Eric, I like to see financing updates like this. Financing is a big piece of the home buying puzzle. Thank you.

Posted by Kathleen Daniels, San Jose Homes for Sale-Probate & Trust Specialist (KD Realty - 408.972.1822) about 4 years ago

Eric - Thank you for the information. I have been wanting to get more details since I got word of this awhile go.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) about 4 years ago

I need to do some side by side analysis to see how this stacks up for a borrower verses FHA.  Rates, credit requirements, mortgage insurance differences (up front and monthly), etc.

Posted by Jim Paulson, Owner,Broker (Progressive Realty (Boise Idaho) www.Progressive-Realty.info) about 4 years ago

Eric Boucher

Everything old is new again. Can 100% financing be far behind?

Posted by Brian Rugg, Sun City TX Real Estate - Georgetown, TX Real Est (Rugg Realty LLC Sun City Texas 512-966-3200) about 4 years ago

Hey stranger!

This is a good thing..anything helping new homeowners financially acheive the dream of homeownership is okay in my book. 

Posted by Suzanne Otto, Your Montgomery County PA home stager (Six Twenty Designs) about 4 years ago

Hi Suzanne Otto - thank you for your comment.  I hope you're doing well!

Hi Brian - I think that we will see the eventual re-emergence of a 100% Fannie product.

Hi Jim - I did some of this on my own.  I think that the FHA product is better despite its "lifetime" MI.

HI Christine - I hope this information was valuable to you

Hi Kathleen Daniels - unless you're a cash buyer, financing is arguably the biggest piece of the puzzle for some!

HI Kim - I hope that is what this program does.

Hi Conrad Allen - sorry for the late reply.  Yes, PMI is involved and it's expensive

Hi Michael - I totally agree.  High payments for folks who haven't saved a lot of money is a dangerous combination.

Posted by ReadySetLoan Condo Approval Team, The FHA/VA Condo Project Approval Specialists (ReadySetLoan Condo Team LLC) about 4 years ago