Fannie Mae and Freddie Mac both recently announced the return of the 97% Mortgage. That’s right, just a 3% down payment will get you into a new home, plus closing costs of course. Officially announced on December 8th, the two secondary mortgage giants stated they will start offering 97% LTV financing to homebuyers who could otherwise qualify for a mortgage, but may not have the resources for a larger down payment.
The program, which is available via Fannie Mae immediately, and shortly offered by Freddie Mac as well, is not formally named. It’s an extension of the existing MyCommunityMortgage (MCM) program; and, in official Fannie Mae documents, is referred to as the “expanded LTV” program. For the sake of coming up with a name, I like to refer to it as the Conventional 97. Catchy, right?
It’s a true, three-percent-downpayment mortgage program, for which the 3% downpayment may come as a gift. In many respects, it’s more aggressive that the FHA’s benchmark mortgage product in that guidelines are simpler and less-restrictive.
Can this be better than FHA? Depending on your financial situation and credit score, absolutely! First of all, this program is for single family housing only for use as a primary residence. No duplexes, triplexes, mixed use, multi-family homes, investment properties, or second homes. Also, with FHA, there is an upfront mortgage insurance as well as a monthly mortgage insurance. The Conventional 97 only has a monthly mortgage insurance premium based upon your credit score & other factors. Even though FHA requires a 3.5% down payment, their rates are typically .25 basis points below the conventional rate.
Another difference that could sway a buyer back to an FHA mortgage is the use of seller assist. With an FHA loan, the seller is allowed to contribute 6% of the sales price towards your closing costs. This means the buyer can have practically all of their closing costs covered by the seller with just a 3.5% down payment, which can also be a gift. The Conventional 97 limits the seller assist to 3% of the sale price. Talk to your real estate and mortgage loan officer to determine which program might benefit you and your situation most.
The Conventional 97 program has a maximum loan amount of $417,000 where FHA is limited to $389,500 for a single residence. In addition, you can use the program as a refinance loan too! Currently, there is no mandatory homebuyer education required for the Conventional 97 as there was before. But I would suspect it may become a lender requirement for certain lower credit scores.
Now, depending on the location of where you are looking to buy a home, and your family size and income, the Conventional 97 program cannot hold a candle to the incredible 100% financing offered by the USDA mortgage. The USDA loan is and has been the best program available for those who qualify.
You should definitely consult with your real estate professional and loan officer to see what is best for your situation. There are so many factors that can impact which program is best for you as well as the best way to structure a transaction for your ultimate benefit. Contact me today for a no obligation, free pre-approval and needs analysis. I am here to help you when you are ready!