Fannie Mae Loans
The Federal National Mortgage Association (FNMA) is a government entity that backs mortgages, rather than providing them. Its goal is to stimulate mortgage spending throughout the domestic market, by investing in the market and creating more liquidity for lenders.
Guidelines for Fannie Mae Loans
The Fannie Mae program has strict criteria regarding the loans that are offered. Not only do homes have to be below a certain value, but borrowers should ideally have a debt-to-income ratio of less than 28% on the front end. It is possible to get a Fannie Mae loan with a 36% back-end debt-to-income ratio. In terms of Fannie Mae income guidelines, borrowers will need to make enough to be able to pay down their loan, generally within a 30-year term. There are no Fannie Mae income guidelines in terms of maximum lending caps.
For a conventional loan, a Fannie Mae loan will require 5% down. The minimum credit requirements for a Fannie Mae loan is 620 for a fixed-rate single-family home mortgage and 640 for adjustable-rate mortgages. However, while having credit scores on the low end of acceptable may still get an approval, it can lead to higher interest rates. These requirements are different for different loan programs under the Fannie Mae banner.
Fannie Mae Loan Limits
Fannie Mae loan limits are stricter than many comparable mortgages as the program is designed to avoid subprime lending. The baseline loan limit for 2018 is $453,100, which means Fannie Mae will only guarantee loans that are under this amount.
In high-cost areas, this amount increases to $679,650. These loan limits are determined by county, which makes it important for borrowers to check on their limits in each area when looking for a property. Jumbo loans are not generally allowed to be underwritten under this program.
The Fannie Mae HomePath Loan Program
A Fannie Mae HomePath Loan is a loan taken out to purchase a foreclosure owned by Fannie Mae. When Fannie Mae homes fall into foreclosure, the program attempts to sell the homes as quickly as it can. Foreclosures are renovated to be in acceptable condition and then offered to both occupant owners and investors. Condominiums, townhomes, and single-family homes can all be purchased through this program. However, this program can only be used to purchase Fannie Mae homes; they can’t be used to purchase another foreclosure.
The Fannie Mae HomePath programs offer homes at 3% down for those who are purchasing a residence. Homes are offered at 10% down for owner-investors. Though these homes are generally brought to livable condition, they are sold “as is” and may have some substantial problems that need to be fixed; their condition is not guaranteed. For those who are looking for a foreclosure at below market rates, this program may be ideal.
As an additional bonus, this loan program allows individuals to get their down payment from anywhere, including from friends and family members. Other loan programs require that a down payment not originate from anyone but the borrower. Investors can purchase a property through this program at a lower down payment than might otherwise be required.
Fannie Mae HomeStyle Loans
Fannie Mae HomeStyle Loans provide a way for homeowners to purchase a home and renovate it with a single mortgage loan, rather than having to take out a secondary loan on top of their primary loan. HomeStyle loans are ideal for those who are looking at properties that need major repairs. These loans are provided by Fannie Mae to encourage borrowers to both purchase and improve upon damaged homes, which in turn improves the community.
The HomeStyle mortgage is similar to the FHA 203k rehab loan. In general, the Fannie Mae program has fewer requirements for the property to be rehabilitated, but more stringent requirements for the borrower. Fannie Mae Loan requirements have higher FICO scores and higher debt-to-income ratios when compared to the FHA 203k rehab loan. However, there are lower mortgage insurance costs for the HomeStyle Fannie Mae Program, making it better for those who are intending to pay less than 20% down.
HomeStyle mortgages for Fannie Mae homes do not have any restrictions on the types of improvements that will be made. There are higher loan limits than the FHA rehab loan and the loan can be combined with the FannieMae HomeReady program. The HomeReady program is a 3% down loan option that’s extremely flexible.
Fannie Mae Interest Rates
Fannie Mae home loans are underwritten by conventional banks and then guaranteed by Fannie Mae. Consequently, they generally have the same competitive interest rates across the rest of the market. Fannie Mae interest rates will be based on the borrower’s credit score and the bank that the borrower is applying with. Fannie Mae home loans can be refinanced later on for better interest rates and it is also possible to pay down points on the loan during the initial loan origination.
Fannie Mae’s loans often don’t have private mortgage insurance, which does reduce the overall cost of a loan with less than 20% down. This can factor into the affordability of the mortgage, even if the interest rates are not substantially lower than other mortgage packages.
Who Can a Fannie Mae Loan Help?
A Fannie Mae loan is primarily useful for first-time homebuyers, with very low deposit requirements and competitive interest rates. Those who have credit scores of 620 or more can qualify for a Fannie Mae loan. These loans are especially useful for those who are interested in purchasing a foreclosure or for those who want to renovate a property after they purchase it. At the same time, it is possible for conventional loans to be acquired at lower interest rates, especially by those who have higher than average credit.
Borrowers who don’t meet the requirements of a Fannie Mae loan program may want to look into FHA loans and FHA 203(k) loans instead, which are comparable in many ways.
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