On September 10th Fannie Mae (FNMA) announced its decision to discontinue purchasing Conventional mortgages with less than 5% down, a move that Freddie Mac (FHLMC) made several years ago in the aftermath of the housing market collapse. FNMA began purchasing mortgages with loan-to-value (LTV) ratios as high as 97% in 1997 in an effort to expand homeownership, and has been doing so ever since. Even though these 3% down Conventional loans have still been available and deliverable to FNMA, many lenders stopped offering them during the so-called Great Recession because of the difficulty and/or costs associated with securing Private Mortgage Insurance for these high-LTV loans.
While insuring a mortgage with a higher LTV is more expensive, the 3% down Conventional loan has been a great alternative to FHA financing, especially since the Federal Housing Administration increased the cost of its Mortgage Insurance premiums in April of this year. 97% Conventional financing became an even more attractive low-down-payment alternative in June when it was announced that Mortgage Insurance premiums for FHA loans would be permanent (as opposed to dropping off once LTV fell below 80%). This is important because Conventional loans, though slightly more expensive monthly, are now currently a better long-term choice for borrowers who plan on owning their home for an extended period of time because they won’t have to refinance (in a potentially much higher interest rate environment) to get rid of the monthly Mortgage Insurance premiums.
These new guidelines are scheduled to go into effect for loan applications which are submitted and processed through DU (Desktop Underwriter, the Automated Underwriting System for mortgages which are sold to Fannie Mae) after November 15th, so borrowers who are interest in taking advantage of this program need to move quickly.
However, even once these changes take place there are several creative ways in which a lender and a realtor can work together to minimize the cash required from a buyer at closing, by either asking for seller concessions, or taking advantage of lender credits or bond money programs.
This article was written by: Michael Smith at Mortgage Loan Officer, PrimeLending. Michael can be contact by phone at 321-536-3206 or email firstname.lastname@example.org