Fannie Mae 97% Conventional Mortgage Loan is back for qualified first time home buyers as announced by Fannie Mae on December 8, 2014. The this new loan option for qualified first time homebuyers that will allow for a down payment as low as three percent or for limited cash out refinance of home owners who currently have a Fannie Mae loan. The lower down payment is to help qualified borrowers to access credit that may not have the resources fro a larger down payment.
These 97% Conventional loans do require mortgage insurance as the borrower is financing more than 80% of the value of the home. The mortgage insurance can be paid on a monthly basis or paid as a one time single premium at closing.
Fannie Mae New Rules for Delaware Home Buyers Effective January 2014
Fannie Mae released an update to its Selling Guide SEL-2013-06 which will be effective January 10, 2014 with the update to automated underwriting system DU version 9.1. Â The update makes the following changes to conventional mortgage loans sold to Fannie Mae:
No longer accept mortgages with terms greater than 30 years (So no more 40 year mortgages)
Adjustable Rate Mortgages (ARMs) that are 7 year fixed or 10 year fixed will need to be qualified at higher of note rate or fully indexed rate which ever is higher
No longer allow Loan-to-Value (LTV) over 95% (So no more 97% LTV Loans!!!)
Will force Lenders to purchase back loans that can be proved to fail the ATR (Ability to Repay) test
The 97% Loan that is no longer eligible includes the My Community Mortgage programs and the HFA programs. Â The ATR test is the biggest change that most people will not directly see as it will effect how lenders underwrite loans after January 10, 2014. Â The new rule says that if a loan defaults at anytime during the 30 year term of the loan, Fannie Mae can review the loan and if determines the lender failed to adequately document the borrower’s ability to repay then the lender must indemnify Fannie Mae for the complete loss. Â The big problem is Fannie Mae has not clearly defined what a lender is suppose to do in order to document the borrower’s Ability to Repay a loan. Â This means Fannie Mae can subjectively decide if a lender passes the ATR test when a loan goes bad.