St. Louis Mortgage Help

The 3% Down Alternative to FHA

It seems that a lot of people think that Conventional financing requires a minimum down payment of 20% or more.

I am shocked at how many folks I speak to every day that think that a conventional loan is not an option for buying a home with a low down payment.

Both Fannie Mae and Freddie Mac, the conventional mortgages, have special loan programs available that, based on your income, and/or the geographic region you are buying in, allows you to buy with as little as 3% down payment.

Normally Better Credit is Best

With normal conventional loan programs they tend to favor better credit scores, through their risk based pricing they punish borrowers with lower credit scores with costs to the lender that increase interest rates if you are not perfect in the eyes of Fannie or Freddie.

If you’re one of those homebuyers, or homeowners that has excellent credit to decent credit, but not a lot of equity or money for a down payment, you may be surprised at conventional loan options offer.

Fannie Mae HomeReady

Fannie Mae’s HomeReady program is designed to meet the diverse needs of today’s buyers using flexible underwriting guidelines for credit worthy low-to-moderate income borrowers trying to finance a home.

HomeReady Better Features

  • Income from non-borrowing household members can be considered as a compensating factor to allow debt to income ratio greater than 45%, up to 50%.

  • Can use income from rental unit and boarder income for qualifying.

  • Allows non-occupying borrowers, like a parent, to help meet debt to income requirements.

  • Financing up to 97% loan to value for the purchase of a one-unit principal residence.

  • Financing up to 95% loan to value for limited cash out refinances, or 97% loan to value if mortgage being refinanced is owned or guaranteed by Fannie Mae.

  • You are NOT required to be a first time home buyer to qualify for this program

  • Private mortgage insurance is discounted, in many cases below that of FHA and a regular conventional mortgage.

  • Gifts, grants, community seconds, and cash-on-hand can be used as a source of funds for down payment and closing costs.

  • Nontraditional credit is allowed.  An example is rental history, or utility and insurance payments.

    Qualifying Requirements for HomeReady

    Borrowers using HomeReady are required to meet certain criteria that are not necessarily required if you’re using a traditional conventional loan with a maximum loan to value of 95% (5% down payment for purchase).

    Homeownership Education Requirement – A homeownership education course may be required unless you have previously taken a course required by a community seconds program, or if you’ve completed a course from a recent attempt to purchase another home.

    Income Eligibility – HomeReady is available to any homebuyer or homeowner that meets the income limits of the property location.  The income limits may be waived if the property is located in a “targeted” low-to-moderate income Census Tract.

    You can look up the income and property eligibility by entering the address of the home you’re interested in into Fannie Mae’s Eligibility Search Tool Here

    Freddie Mac Home Possible Mortgages

    Freddie Mac’s Home Possible mortgage offer low down payments for low-to-moderate income homebuyers, or buyers in high-cost or underserved communities.

    Freddie Mac offers two different low down payment options, Home Possible 95% Loan to Value, and Home Possible Advantage 97% Loan to Value. I will only address the 97% or 3% down payment option.

    Home Possible 97% Features

  • Maximum loan to value 97%.  Minimum 3% down payment for purchase.

  • 1-unit single family unit homes, condominiums, and planned unit developments are eligible.

  • Flexible sources of down payment.  Down payment can come from a variety of sources, including friends and family, employer-assistance programs and secondary financing.

  • No cash-out refinancing is available up to 97% loan to value for borrowers who occupy the property.

  • Income flexibility.  Borrowers with income above the area median income (AMI) may be eligible in high-cost areas.  No income limits in underserved areas.

  • You can check eligibility by using Freddie Mac’s Home Possible Income & Property Eligibility Tool Here.

  • Private mortgage insurance is discounted, in many cases the monthly mortgage insurance is well below that of a regular conventional mortgage and below that of FHA

  • All borrowers must live in the property.  Non-occupying borrowers not allowed at 97% loan to value.

    How Do I Choose The Best Option?

    There is very little to no difference between the costs and interest rates of these two programs, so it comes down to your financial situation that may determine which option is best for you.  In a sense, the best option chooses you.

    FHA, HomeReady, or Home Possible should all be considered for many home buyers that in the past were placed only in a FHA mortgage. What use to be has changed, if yesterday you were a FHA mortgage today you may have a better option

    A common example is if you have student loans with Income Based Repayment (IBR) payments. FHA, Freddie Mac, and Fannie Mae all handle this situation differently.

    Another example is that the targeted income and property lookup tools offer different results.  If you look up a property using Fannie Mae’s HomeReady lookup tool, you may make too much income to qualify, whereas if you look up the same property using Freddie Mac’s Home Possible lookup tool, you may qualify. FHA does not have a maximum income limitation.

    If you are considering a new home purchase and want a low down payment option you need to consider a mortgage lender that has experience with FHA, Home Possible, and HomeReady, and is willing to consider all possible options for you.

    If you want to talk with me about what options are available to you please contact me, Bob Rutledge, at 314-628-2218 or email me at brutledge@usa-mortgage.com

Posted by Bob Rutledge on January 24th, 2018 10:08 AM
"Can I refinance my home if I have no equity in my house?" "I am underwater on my home can I refinance?" "How can I get cash out of my home if I have no equity?" These are just a few of the questions I get asked as a Mortgage Loan Officer.

The answer is YES, you can refinance just about any mortgage to just about any mortgage program with little to zero equity in your house!

FHA Mortgages; this is one of my favorites because there are all sorts of way to make FHA work for you. If you already have a FHA Mortgage utilizing the FHA Streamline refinance works well for those with little to no equity in your house because it doesn't matter. The FHA Streamline does not require an appraisal in most situations, they will actually use the last appraisal of your home. There is no cash out at closing with a Streamline refinance only rate and term changes.

If you do not have an FHA Mortgage or can't do a Streamline Refinance FHA allows for a rate and term refinance up to 97.75% of the appraised value. If you need cash out of your home the loan to value for an FHA cash out refinance is 85% of the appraised value. In both of these situations the lender will require a new appraisal. If you would like to learn more about the FHA Mortgage click the link.

FHA has a special loan program called the FHA 203k Renovation Mortgage, if you are looking to use the equity in your home to make improvements or remodel your home this may be your solution if you have little to zero equity. The FHA 203k will allow you to borrower 110% of the appraised value of your home. The appraisal value for a FHA 203k is based on what your home will be worth once your home improvements are completed, basically giving you a valuation on your home on the future work to be done. You will have refinanced your current mortgage plus received the money needed to make the improvements to your home. I am a Certified FHA 203k Removation Mortgage Specialist and can help. If you would like to know more about the FHA 203k Renovation Mortgage follow the link.

VA Mortgages, 100% of the value of your home! No matter the type of refinance of your current VA mortgage you can borrow up to 100% of the appraised value, this includes cash out refinances. Yes, you can get cash out of your home up to 100% of the new appraised value.

Are you someone that served in the United States Armed Forces and you don't current have a VA mortgage. First, thank you for your service to the country, it is appreciated. Second, you need to consider refinancing to a VA Mortgage, follow the link to learn more.

Conventional Mortgage, Fannie Mae or Freddie Mac, 95% is the maximum rate and term refinance you can do with a conventional mortgage. If you want to do a cash out refinance you are very limited in your loan to value to 80% of the new appraised value. Nothing really special about conventional mortgages. 

Fannie Mae has a renovation type mortgage very similar to the FHA 203k Renovation Mortgage, the Fannie Mae Program is called the HomeStyle Renovation Mortgage. If you want or need a conventional mortgage AND you are want cash out for improvements to your home the Homestyle renovation mortgage will allow you to borrow up to 95% of the new appraised value. Now you have refinanced your current mortgage plus received the funds to improve your home. I close many renovation mortgages every year, if you have questions please feel free to contact me.

USDA Mortgage, no cash out refinancing with a USDA mortgage, but you can refinance to lower your interest rate and/or shorten your term with little to zero equity.

HARP, the Home Affordable Refinance Program, this program was developed my our Federal Government for the sole purpose of allowing home owners to refinance their home when they have little to zero equity. The HARP refinance will allow for you to refinance your home even when you are underwater. If you would like to learn more about HARP please click on the link. 

If you would like to talk about refinancing your home, especially if you have little to no equity in your home please feel free to contact me. 
Bob Rutledge Mortgage Loan Officer

St. Louis MO, St. Charles MO, Kansas City MO, Springfield MO, Columbia MO, Cape Giradeau MO, Branson MO, Jefferson City MO
Posted by Bob Rutledge on March 24th, 2017 3:11 PM

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