First Time Homebuyer Mortgage

FirstTime Homebuyer Mortgage is now available for Conventional financing through Fannie Mae (FNMA) as a Standard 97% product loan.

Always remember that Fannie nor Freddie make the loan. They purchase these loans per their guidelines while the banks and mortgage lenders make the loan, fund the loan and often service the loan.

If you are a First Time Home-buyer or need a mortgage loan with a minimum down-payment, higher LTV, and flexible source of funds, you are in luck.

First Time Homebuyer Mortgage to 97% Loan to Value-Updated: 9-17-21- for further clarification

FNMA has a standard purchase product to 97% with applicable criteria and guidelines for that product.  The requirement of at least one borrower must be a first-time homebuyer does exist.

This is not the Home Ready mortgage product as this loan does not have the requirement of a first-time homebuyer.

This is one step that was definitely good for those who need a lower down-payment and more favorable terms.  It gets better than previous programs, and they can now compete with FHA. You can see that Fannie is now making available 97% financing on other products as well as purchase transactions.

Let me also mention that Freddie Mac also has a 97% loan financing by the name of Home Possible. This is product is available for:  A responsible, low down payment mortgage option for first-time home-buyers and low- and moderate-income borrowers.

Guidelines Are Somewhat Different Than Standard 95% loan to value Financing

There are certain guidelines for lenders to follow, and one of those strict rules is that these loans must be run in their automated underwriting system, (DU) which is a risk management tool for underwriting Fannie Mae loans. Freddie Mac states loan must be approved re: Loan Product Advisor or manual underwriting.

There is a flexible source of funds is for those who qualify and do not have the 5% of their down payment from their own saved funds.

There will be restrictions and certain criteria that may apply. However, but this is one great higher LTV advantage that is now in place that will eliminate the upfront MIP that one must have with an FHA loan. FHA lending was the option for First Time Home-buyers and those who needed a higher loan to value and flexible source of funds.

As a First Time Home-buyer Mortgage -Conventional Loan or Higher Loan To Value of 97%;

You should know the following:

• FNMA’s guidelines will allow for a 3% down payment for a flexible source of funds for all 1-unit properties which are owner-occupied, principal residences.
• Source of funds may be from personal gifts, gifts,s or grants from an entity, employer assistance
• Credit should be good, with minimal derogatory issues, which can be addressed as non-recurring and will be approved by the automated underwriting system.
• Reserves will be dictated by the AUS (automated underwriting system) and will depend upon the strength of the file in question.  This will include, debt to income ratios and credit scores.
• The property type must be a single-family, one-unit principal residence, including condos, co-ops, and planned unit developments (PUD).
• There is no income limitation for HomeReady 97% in low-income census tracts: but 100% of AMI in all other areas. Standard 97% FNMA product has no income limits
• Mortgage insurance is required. It is 25% MI coverage for LTV ratios of 90.01 to 97%. Standard MI coverage for ratios of 90% or less.
• Fannie Mae Standard 97% financing MI is Standard MI coverage
• HomeReady Mortgage Applicants must have home-ownership education. Online courses are available, and lenders will inform you of this.
• Home-buyer education is not required for FNMA Standard 97% loan.

Gifts allowed criteria:

• Personal gifts may be from a relative, a spouse, child, mother, or father, and blood relative by marriage, adoption, or legal guardianship, fiance’, fiancee, or domestic partner.  Any party to the transaction is not acceptable.  Meaning Broker, Real Estate Agent, Builder, etc.
• Gift funds must be documented with a gift letter, indicating the gift donor; their name, address, and phone number.  The dollar amount of the gift, when the funds will be transferred, and that no repayment is to be expected from the applicant.
• The best solution for gift funds is for the fund to be gifted at closing with a certified check from the donor.  So many times people go ahead and transfer funds prior to a loan application or closing and do not have all of the paper that this entails.  It is highly recommended that one wait to transfer funds until instructions from the lender of choice.  Sometimes people lose documents that are vital to final approval.
• The lender must verify the donor’s ability to give the dollar amount.  This includes the following:  1) A copy of the donor’s check and a copy of the deposit slip. 2)  a copy of the donor’s withdrawal slip and a copy of the applicant’s deposit slip. 3) a certified check to the closing agent or 4) a HUD1 settlement statement showing the gift given by the donor.
• Remember that a lender’s guideline may vary somewhat from these Fannie guidelines. They could ask for further guidelines to suit the situation at hand.  If funds have been transferred prior to the applicant, you might have to dig up your documentation to prove who gave the gift, etc.  The transfer from the donor to the applicant must always be documented.

• Other Criteria Required for this First Time Homebuyer Mortgage with a Higher Ratio:

• Your debt to income ratio (DTI) will be important. If your credit score is 680 or above the higher, your DTI can be if all other aspects of the loan match. Lower credit scores will limit the DTI ratio to 36%. With a higher DTI of approximately 45%, you would need a credit score of 700 or above if the LTV is greater than 75%.
• Mortgage Insurance is required for any loan to value greater than 80%.  It is in the monthly payment or it may be financing in certain circumstances.
• Employment should be a minimum of 24 months history, but less is acceptable with a transcript from a university or technical school.

*Source:  FNMA.  Please note that certain restrictions, guidelines, and criteria may apply and may not be listed here in the summary of qualifications.  Please refer to your lender of choice for full details and any area of your personal credit situation which may exist.