The changes in FHA-backed financing have many homebuyers seeking an alternative and, although it’s been around since 2006, Fannie Mae’s My Community Mortgage Program’s time has come.
This is a conventional loan product, ideal for first-time homebuyers lacking a large down payment and with limited credit histories.
With flexible underwriting and a 3 percent down payment requirement, My Community Mortgage is a lower-cost alternative to FHA in many instances.
“Say you want to buy a $180,000 house and you don’t have much cash for a down payment,” hypothesizes George Souto, a loan officer with McCue Mortgage in New Britain, Conn. at Washington Post’s website. “If you go with a 3.5 percent FHA loan, you would need to come up with $6,300. If you select Fannie’s 3 percent loan, it’s just $5,400,” he concludes.
Fannie Mae’s program offers financing for primary residences only, but they may be in planned unit developments as well as detached or attached homes or condos, if the condo is a Fannie Mae warrantable project. Check the Fannie Mae website to determine if the project in which you hope to purchase is eligible.
Loans can be 30-year fixed or 5/1 Libor adjustable; interest-only loans are not allowed.
To qualify for a My Community Mortgage loan you must be a U.S. resident, a permanent resident alien, or an eligible nonpermanent resident alien.
Additional requirements include:
First-time homebuyers must attend homebuyer education classes.
The applicant can’t have an ownership interest in any other dwelling.
Borrowers must have at least a 620 credit score and sufficient credit (at least three trade lines with a 12-month history on each).
Borrower income limits are listed by state at HUD’s website.
Mortgage insurance requirements depend on the loan-to-value ratio and range from 6 to 18 percent. Mortgage insurance cannot be financed.
There are restrictions on the use of gift funds for the down payment (loan-to-value ratio must be 80 percent or less).
Loans for Heroes
The My Community program has special perks for our nation’s civilian heroes: nurses, paramedics, firefighters, police officers and teachers.
These folks are allowed higher debt-to-income ratios, gifted down payments and even consideration of part-time income under specific circumstances. They also qualify for lower PMI premiums.
“Home Possible” is Freddie Mac’s alternative to both the FHA-insured loan and Fannie Mae’s My Community Mortgage. With FHA’s requirement that forces homeowners to continue to pay for PMI premiums for either 11 years or the life of the loan, Home Possible, with its reduced mortgage insurance coverage levels, is a popular alternative.
Although the down payment requirement is 5 percent – a bit higher than both Fannie Mae and FHA, all of the money can come from gifts from family or friends.
Applicants must attend a homeowner education course, which you can learn more about at Freddie’s website.
Borrowers may use the loan to purchase single-family homes with one to four units, PUDs, condos and, with a few exceptions, even mobile homes. Loan terms are flexible with 15-, 20- and 30-year fixed rate products. Adjustable rates are available as well.
See a lender to apply for either the Fannie Mae or Freddie Mac program. If you’re unsure how either program stacks up against an FHA-backed loan, ask your accountant to run the scenarios for you.