Conventional Mortgage Program Offering 3% Down Payments

If you are starting to look into buying a home and have been qualified by your lender for a Federal Housing Administration (FHA) mortgage due to a limited down payment, you now have an alternative. Fannie Mae has recently introduced their 3% down payment mortgage option. This program compares favorably to FHA financing. It allows 100% of the down payment to be gifted from a relative, offers low mortgage insurance rates, and requires a less restrictive appraisal as compared to the FHA's health and safety repair standards. Below is a summary of the guidelines for the Fannie Mae conventional 97% mortgage:

• Past Homeownership Qualification - This mortgage program is available to all homebuyers. Both first and second time home buyers may qualify for this 3% down payment mortgage.

• Down Payment - The down payment requirement for this loan program is 3% of the sales price. It allows 100% of the down payment to be a gift from a family member, dependent on the borrower's credit scores.

• Owner Occupied - This program can only be used by individuals who intend to occupy the home. It does not allow for investor financing.

• Property Type - The Fannie Mae 3% down mortgage can only be used for single-family dwellings and qualifying town-homes and condominiums.

• Mortgage Insurance - Fannie Mae does require monthly mortgage insurance to be paid on this mortgage type. Although, compared to FHA financing, the monthly mortgage insurance is significantly less. Fannie Mae does not have any upfront mortgage insurance, whereas FHA charges 1.75% of the loan balance upfront. In addition, FHA charges monthly mortgage insurance for the life of the loan, whereas conventional financing typically only charges mortgage insurance until the home reaches 80% loan to value (please consult your lender for details).

• Purchase or Refinance - This loan product can be used for either the purchase of a new house or for a rate and term refinance. It does not allow for a cash-out refinance.

• Maximum Mortgaged Amount - The current maximum conventional loan amount for Fannie Mae is 417,000.

• Loan Types - Fixed 30 and 15 year term mortgages are available with this loan product. Variable rates are not available.

• Credit Score Requirements - This program requires a middle credit score of 680 or better; unless the down payment is being gifted. In the case of a gift for the down payment, the middle credit score must be 740 or better.

• Debt-to-Income Ratio Limitations - The maximum debt-to-income ratio allowed for financing under this program is 45%. The income actually used by the lender for qualifying purposes for W-2 employees, is calculated by your last two years W-2(s) minus the employment related expenses listed on your tax returns. It is advisable, whether you are employed, self-employed, or retired to review the amount of monthly income a lender will use for your mortgage qualification purposes.

The documentation required for the Fannie Mae 3% down mortgage is the same as any other Fannie Mae mortgage product. Typically, a borrower will need to provide their last 30 days pay stubs, last two years tax returns and W-2(s), last two months bank statements, and a copy of two government issued IDs. Although, if the borrower is self-employed or receives 1099 income, there will likely be additional documentation required. Based on your employment and credit history, as well as the type and condition of the house you intend to purchase, the Fannie Mae 3% down payment option may be the least expensive and fastest route to closing on your new home.

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