Update: This is a classic example of the trouble with writing about mortgage programs…some are no longer available. When researching about mortgages on the internet, please be sure to check the date of the article.
With many of the zero down options tightening up, it's time to return to the mortgage programs that were popular a few years ago before the 80/20s were all the craze. One such program worth considering is the Fannie Mae Flex (97 and 100). This is truly a low down program offering either a minimum $500 borrower contribution or 3% flexible contribution.
The Fannie Mae Flex allows for flexible sources of funds for closing costs and prepaids:
- Borrowers own funds (including loans against a 401(k) account or cash-valued life insurance policy.
- Gift or unsecured loan from a relative.
- Grant from non-profit or employer.
- Interested party contributions (to be applied to closing costs and prepaids) such as a Builder or Real Estate Agent.
The Flex program utilizes automated underwriting so minimum credit scores, reserves and qualifying ratios are determined by Desktop Underwriter.
There are no income limitations, such as with My Community programs. The program is limited to conforming loan limits (currently $417,000 for a single family dwelling).
There is private mortgage insurance with this program. However, with a credit score of 620 or higher, a borrower may qualify for LPMI (Lender Paid Mortgage Insurance). The rate with LPMI may or may not pencil out, depending on the credit score and loan to value. Also, private mortgage insurance is tax deductible this year if you meet income limitations.
Sorry folks, this program will not work for manufactured homes.
Currently, I'm helping a couple buy their first home with this program. They are utilizing a gift from their parents for the down payment and the real estate company they are working with rebates part of the commission which will cover their closing costs (including a 1% discount towards their interest rate). The couple will not have to dip too deep into their savings or 401(k). The current interest rate for the 30 year fixed rate is in the low 6%s with a loan to value of 97%. They will pretty much be getting into their first home with the earnest money investment of approx. $2,500 (special thanks to Mom and Dad).
Here's a quick re-cap of the Fannie Mae Flex program:
Low down payment
Higher debt to income ratios allowed
Forgiving of credit scores
Remember, always check with your Mortgage Planner to see which strategy for your home financing best suites your personal needs.