By: Lloyd Rutherford, Staff Writer
Fannie Mae has updated their FAQs for 97% LTV Options for Purchases and Limited Cash-Out Refinances. Excellent clarification contained in this article, so be sure to read it and update your knowledge.
Fannie Mae updated their 97% LTV Options for Purchases and Limited Cash-Out Refinances FAQ document.
The FAQ document has a total of 11 questions and we will review each one below.
We will summarize the questions and then provide a brief summary at the end of this article.
The document is broken down into three sections:
- General – A total of 4 questions are in this section
- Purchase Transactions – 97% LTV Options – A total of 4 questions are in this section
- Limited Cash-Out Refinance Transactions – 97% Option for Existing Fannie Mae Loans – a total of 3 questions are in this section.
Question and Answer Review:
Q1: Aren’t 97% LTV loans at greater risk of default, especially with only 3% down?
A1: Not generally. Loans above a 95% LTV must be approved through DU, and the default risk is minimal between the LTV buckets of 90%-95% vs. those between 95.01 to 97%. DU assesses many risk factors and looks at layered risks when the loan is run through DU.
Q2: What are the eligible property types for 97% financing options?
A2: One-unit principal residences, including condos, PUDS, and co-ops. No manufactured!
Q3: What are the eligible loan types, including terms for 97% financing?
A3: Must be a fixed rate mortgage with a term that does not exceed 30 years. ARM’s and high-balance loans are not eligible for 97% financing options.
Q4: Are there special feature codes (SFC) required for delivery on these loan products?
A4: Yes. SFC 127 required for all loans at 97% LTV; SFC 900 would be added as a requirement if the loan type was a HomeReady® product.
Q5: Are 97% LTV options limited to just first-time home buyers?
A5: No. The HomeReady® product does not require the borrower(s) to be first-time home buyers, but the standard 97 product does require them to be first-time home buyers.
Q6: Are there different eligibility requirements between a HomeReady® at 97% LTV vs. a Standard 97% LTV product?
A6: Yes. Refer to FAQ document for grid.
Q7: Are there specific requirements for the HomeReady® product and Homeownership Education?
A7: Yes. Refer to FAQ document for specifics.
Q8: What are the eligible sources for the borrower’s 3 percent contribution, including down payment, closing costs and reserves?
A8: Gifts, grants and community seconds. The borrower is not required to make a minimum contribution for their own funds on one-unit properties! You can finance up to 105% CLTV when using community seconds, and remember too that cash on-hand can be an eligible source as well based on certain parameters.
Q9: How does a lender verify that an existing loan is owned or securitized by Fannie Mae so that I can offer a 97% financing solution for a limited cash-out refinance?
A9: You can use the lender’s servicing system (if the lender is servicing the loan for the existing mortgage); contact the current servicer; obtain a printout from Fannie Mae’s loan lookup tool, or any other source as confirmed by the lender – documentation should ultimately validate that the loan is currently owned or securitized by Fannie Mae such as by referencing the Fannie Mae loan number for the existing mortgage loan.
Q10: What data must I input into DU to identify the existing mortgage is owned or serviced by Fannie Mae?
A10: Use the file identified as “Owner of Existing Mortgage” in the online loan application.
Q11: Can a limited cash-out refinance with an LTV greater than 95% (up to 97%) be delivered as a HomeReady® product/loan?
Simple and to the point. This is a high-level overview of the 97% financing options offered by Fannie Mae, or by accessing Mortgage Currentcy’s website where we have created Mortgage Talking Points and comparison charts for 97% financing options.
Loan Officer/Processor/Closer/Manager/Owner Interpretation
It is important to understand the different options between Fannie Mae’s 97% loan offerings. Each has their own unique place for various scenarios.
Great resource document.
Social Media Post
The HomeReady® product does not require the borrower(s) to be first-time home buyers, but the Standard 97 product does require them to be first-time home buyers.
Copyright © 2018 – Mortgage Currentcy – All Rights Reserved