Conventional Loans – The Most Common Path to Homeownership

To Simplify:

The GSE’s do not make loans – they buy them.

You are not applying to them or getting a loan from them, as it is not you that they are interested in but your loan.

Here is a very simple explanation of how this works:

Banks and other lenders have only so much money to lend for mortgages, and when they run out of their own money, they sell your loan off and then use the money they make from selling your loan to give another loan to someone else, and the process goes on and on.

Freddie Mac and Fannie Mae are basically markets they sell the loans through.

It is for this reason that you must not only qualify for the loan under the lender’s guidelines but also under Fannie Mae’s and Freddie Mac’s guidelines, otherwise your loan cannot be sold, and the original lender is stuck with it. (they don’t like this)

Another issue is that when putting down less than a 20% down payment, the lender will also require private mortgage insurance (PMI).

So, you are really qualifying for several different things at once when you obtain a loan to buy a home. This is why they are going to ask for so many different items and documents from you.

Behind the scenes, it’s pretty complicated process now – but don’t worry – we will help you through your part of it and it won’t be that bad.

Fannie Mae Loan Programs – For first-time buyers:

Fannie Mae offers several loan programs to assist different groups of homebuyers and homeowners. Here are a few key ones:

1. HomeReady Mortgage: This program targets creditworthy, low-income borrowers by offering a low down payment of just 3%, and reduced mortgage insurance costs. Borrowers can also include income from household members who are not on the loan, which can help in qualifying for the loan.
2. 97% LTV Standard Mortgage: This is similar to the HomeReady but without some of the income restrictions. It’s designed for first-time home buyers and allows for a down payment as low as 3%.
3. RefiNow and Refi Possible: These refinancing options are designed to help homeowners with existing Fannie Mae or Freddie Mac mortgages to refinance at a lower interest rate and reduce their monthly payments. These programs have specific eligibility criteria aimed at benefiting lower-income borrowers.
4. HomeStyle Renovation: This loan allows borrowers to finance both the purchase or refinance of a home and the cost of its renovation through a single mortgage. It’s available for owner-occupants, investors, and second-home buyers.

These programs aim to make homeownership more accessible and affordable, especially for first-time buyers, low-income households, and those needing extra help with financing home improvements.

1. HomeReady Mortgage: Offers low down payments of 3% for creditworthy, low-to-moderate income borrowers, with flexible funding options and reduced mortgage insurance costs.
2. Standard 97% LTV Loan: Provides a low down payment option without specific income limits, aimed at first-time home buyers.
3. RefiNow and Refi Possible: Refinancing programs designed to help lower-income borrowers with existing Fannie Mae or Freddie Mac loans reduce their interest rates and monthly payments.
4. HomeStyle Renovation: Allows borrowers to finance both the purchase and renovation of a home through a single mortgage.
5. HomeStyle Energy: Offers financing for energy-efficient upgrades when purchasing or refinancing a home.
6. Conventional 97: Similar to the Standard 97% LTV loan, this program offers a 3% down payment option, available to first-time buyers.

These programs are intended to support various needs, from buying and renovating a home to improving its energy efficiency, especially tailored for first-time buyers, low-income, and moderate-income borrowers.

PMI costs typically range from 0.3% to 1.5% of the original loan amount annually. This cost is then factored into your monthly payment, which can have a significant impact on your financial commitment. For instance, consider a $400,000 loan with a 30-year fixed-rate mortgage at 7%. Here’s how PMI can alter your payments:

• With PMI at 0.3%, your actual payment rate will be 7.3%, translating to $2,742 per month.
• With PMI at 1.5%, your actual payment rate will rise to 8.5%, totaling $3,076 per month.

This represents a monthly difference of $334, or an extra $4,008 annually, accumulating to over $120,000 over the life of your loan.

Freddie Mac Loan Programs

Freddie Mac offers several loan programs aimed at making homeownership more accessible and affordable.

These programs cater to various needs, including first-time homebuyers, those looking for refinancing options, and buyers interested in home renovations or energy-efficient improvements.

Here are some of the key programs:

1. Home Possible®: Offers mortgages with as low as 3% down for low-to-moderate income buyers. It’s flexible with funding sources for down payments.
2. HomeOne®: Aimed at first-time homebuyers, this program requires only a 3% down payment and is not restricted by geography or income limits.
3. Refi Possible℠: A refinancing program designed to help homeowners reduce their monthly mortgage payments and interest rates, focusing on low-to-moderate income borrowers.
4. CHOICERenovation®: Provides financing for both the purchase and renovation of a home through one single mortgage, also available for refinancing.
5. GreenCHOICE Mortgages℠: Targets energy efficiency improvements by offering financing for home renovations that reduce energy consumption.
6. Freddie Mac Enhanced Relief Refinance℠ (FMERR): Helps homeowners refinance into a lower rate and reduce their monthly payment even if they do not have much equity in their home.

These programs are crafted to help various groups, including first-time buyers, those in need of refinancing, and individuals looking to make their homes more energy-efficient.