Fannie Mae offers help with home-purchase dilemmas
Fannie Mae loan programs help reduce homeownership barriers
- The HomeReady program offers a 3 percent down payment requirement.
- Crowdsourcing or sharing rental income can help with down payments.
- Reduce the burden of mortgage payments by paying down student-loan debt.
Many segments of potential homeowners are underserved, which means they have inadequate options when it comes to getting a home mortgage. About 121 million Americans have credit scores below 600, for example, according to the Center for Financial Services Innovation, a Chicago-based nonprofit organization for consumer financial-health issues. This makes it nearly impossible for these people to complete a home purchase. There’s also the African-American community, which saw 2017 end with a near-50-year-low national homeownership rate of 41.7 percent, according to the U.S. Census Bureau.
Luckily, whether you’re part of the millennial generation and have yet to build much wealth or pay off your student-loan debt, or you fit into one of the many segments of underserved borrowers, you can find loan programs designed to fit your needs and help you purchase your first home. Fannie Mae, one of the nation’s largest purchasers of mortgage loans, may offer a path to achieving your homeownership goals. Here’s a look at some of the Fannie Mae loan programs offered through mortgage lenders to help reach nontraditional borrowers.
Low down payment option
Fannie Mae’s HomeReady program, aimed at low- and moderate-income borrowers with credit scores of 620 and higher, allows for a home down payment of as little as 3 percent. So, for a $100,000 home, a purchaser would need as little as a $3,000 down payment. That compares favorably with Federal Housing Administration (FHA) loans — long known as the loans used by first-time homebuyers — which have a 3.5 percent minimum home down payment. The Fannie Mae HomeReady Program is available through many lenders nationwide.
“We have very discounted pricing relative to our standard pricing, so even if you have a higher loan-to-value ratio, or maybe even a lower credit score, a lot of those traditional risk-based fees are waived as part of the program,” said Jonathan Lawless, Fannie Mae’s vice president of product development and affordable housing.
HomeReady offers additional benefits that other loan programs may not, including private mortgage insurance (PMI) that can be cancelled once the loan balance reaches 80 percent of the home’s value (this is not true for FHA loans); immediate appraisal orders from lenders to speed up the origination process; and fewer geographic restrictions for maximum loan amounts.
Additionally, closing costs — which include appraisals, inspections and loan-origination fees — can add another 2 percent to 5 percent to the purchase price, according to real estate services provider Zillow. Reducing those costs by leveraging technology and shortening the closing period is a growing trend in the mortgage industry, Lawless said.
“We have this vision right now between the time an application starts and the loan actually gets delivered to Fannie Mae — that process takes an average of 70 days,” he said. “And our thought is, we’d like to see that get to 10 [days]. I don’t know if that’s realistic, but that’s kind of been our North Star.”
Down payment assistance
Fannie Mae also has been experimenting with alternative lending products in recent years, Lawless said, including a crowdsourcing model, known as HomeFundMe, through CMG Financial. Borrowers are able to solicit donations from family members, friends and other connections, then apply them toward their home down payments. Prospective borrowers also can attend credit-education and counseling classes to earn grants of up to $2,500, in addition to any crowdsourced funds they receive.
Another Fannie Mae pilot program, in conjunction with Loftium, a Seattle-based service company, gives homebuyers down payment assistance if they agree to list one of the bedrooms in their new home with Airbnb. The borrower typically shares the rental income with Loftium for one to three years.
“Honestly, it sort of seems like it would appeal to millennials, but Airbnb is something that’s actually growing in all categories of age,” Lawless said. “It’s just a creative way — for a short, temporary time — while you’re trying to raise a down payment, do it through Airbnb and you can get that money upfront.”
The Loftium assistance program launched in 2017 and was initially available only in the greater Seattle area, but it may expand to include other U.S. markets within a year or two.
Yet another Fannie Mae pilot program aims to pay down student loans, a common hurdle for younger, first-time homebuyers. Started in tandem with Lennar, the nation’s second-largest homebuilder, the program allows up to $13,000 or 3 percent of a home’s purchase price to go directly toward a borrower’s educational debts.
The assistance program is only available on new-home purchases through Lennar. Prospective homebuyers must enroll in a homeownership course, and the program is scheduled to end no later than December 2018. Fannie Mae will review the program at that point and may elect to renew it.
According to Experian, one of the major credit-reporting agencies, student-loan debt in the U.S. reached $1.4 trillion in 2017, and more than 13 percent of consumers had multiple student-loan balances on their credit report, with an average total balance of $34,000. And a 2017 survey from the National Association of Realtors (NAR) and American Student Assistance found that millennials (ages 22 to 35) were experiencing an average delay of seven years before purchasing their first home, due to their student-debt loads.
These debt levels are being exacerbated by a nationwide housing shortage, which is driving home prices up, especially in the price range where first-time homebuyers most often look. Inventory was down 10.3 percent year over year as of December 2017 and the 3.2 months of available housing supply was the lowest ever recorded, according to NAR. This innovative Fannie Mae program looks to help ease both issues — student debt and the housing shortage — by getting younger first-time homebuyers into newly built homes.
“We’ve got the biggest generation ever (millennials) about to get to the age in which they want to get married, have kids and buy homes, and that’s just going to continually put pressure on this inventory issue and continue to drive prices, unless we address it as a country,” Lawless said.