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Fannie Mae makes getting a 3%-down mortgage easier

by James F. McClister

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Fannie Mae introduced its HomeReady mortgage last year as an inexpensive lending option that allows borrowers to come in with as little as 3 percent down. Now it’s making “enhancements” to that option, and that could mean more affordable financing in an economy where the new generation of homebuyers is struggling to earn, save, and pretty much live.

According to a release from Fannie Mae, the changes, which will take effect immediately, aim to simplify income eligibility, and improve sustainable homeownership and its market-driven features. The group’s key “enhancements” to HomeReady include:

  • Allowing the occupant borrower on a HomeReady loan to own other residential properties
  • Removing the requirement for homeownership education for limited cash-out refinance transactions
  • Eliminating the requirement for landlord education for HomeReady loans secured by two-, three, or four-unit properties (homeownership education is still required)
  • Deleting references to post-purchase early delinquency counseling requirements to align the post-purchase counseling requirements for all Fannie Mae conventional mortgage loan types, as recently described in Servicing Guide Announcement SVC-2016-05
  • Accepting homeownership education from Community Seconds or Down Payment Assistance Program (DPAP) providers as long as the providers are HUD-approved counseling agencies and the first mortgage loan involves a Community Second or DPAP.

Fannie also tacked on a series of future changes to HomeReady, set to take effect later this year, which include:

  • Allowing a maximum loan-to-value ratio greater than 95 percent up to 97 percent on limited cash-out refinance transactions in Desktop Underwriter (DU), per standard underwriting guidelines, including a requirement that the existing mortgage be owned or securitized by Fannie Mae to be eligible;
  • Expanding current HomeReady eligibility for buydowns and adjustable-rate mortgage loans to include three- to four-unit properties; and
  • The following additional benefits exclusively for HomeReady loans where borrowers have received customized one-on-one assistance from HUD-approved nonprofit counseling agencies in accordance with the requirements outlined above:
    • if the HomeReady loan is delivered with Special Feature Code 184, the lender will receive a loan-level price adjustment credit of $500; and
    • when the lender indicates in DU that the HUD-approved one-on-one assistance was completed, that information will be considered a compensating factor for those loan case files with debt-to-income ratios greater than 45 percent up to 50 percent.

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