Numerous studies and surveys show that the most significant barrier to homeownership for young adults is the ability to save for a down payment and closing costs. There are several factors involved, including high rents, large student loans, and rising living costs.
Fannie Mae introduced 97% LTV (loan to value) mortgage options in response to these barriers. In addition, Fannie Mae has targeted low to medium borrowers in a bid to increase sustainable homeownership through its HomeReady mortgage loan.
These programs allow borrowers to purchase a home with a 3% down payment. The 97% LTV loans take their name from the 97% remaining balance of the mortgage.
The 97% LTV loan programs provide a credible alternative to the FHAs 3.5% down payment loans. Some advantages of 97% LTV home loans are no upfront mortgage insurance fees, a lower down payment, and cancellable private mortgage insurance. Additionally, 97% LTV loans offer a refinance facility for existing loans owned or secured by Fannie Mae.
Related: Mortgage Challenges Facing First-Time Homebuyers
Fannie Mae’s 97% LTV Mortgage Program
Fannie Mae offers 97% loan-to-value (LTV), combined LTV (CLTV), and home equity CLTV (HCLTV) ratios for the following principal residence transactions:
- HomeReady purchase transactions.
- Standard purchase transactions, if at least one borrower is a first-time homebuyer.
- HomeReady and standard limited cash-out refinancing of existing Fannie Mae loans.
“All loans must be fixed-rate and secured by a 1-unit principal residence (includes eligible condos, co-ups, PUDs and MH Advantage homes. Standard Manufactured Housing: max. 95% LTV/CLTV),” according to Fannie Mae.
What Homes Are Eligible for the 97% LTV Mortgage Options?
Homes eligible for a Fannie Mae 97% LTV Mortgage include:
- 1 unit residence.
- Planned unit developments.
- Standard manufactured housing.
Candidates for 97% LTV Home Loans
Fannie Mae’s 97% LTV home loans are structured for a variety of borrowers with various needs.
They can serve the needs of first-time homebuyers with a high income who want a low down payment while also meeting the needs of low to medium-income borrowers.
How Can I Qualify for a 97% LTV Mortgage?
The HomeReady 97% LTV and the Standard 97% LTV home loans have similar eligibility criteria, though they are distinctly different. Consult your mortgage broker for help determining which is best for you.
For a side-by-side comparison see FAQs: 97% LTV Options.
Benefits of a Standard 97% LTV Mortgage
Fannie Mae’s Standard 97% LTV home loans are an excellent option for many modern homebuyers. Borrowers this program serves well include:
- Those with good credit but little savings for a down payment.
- Those who wish to buy a more expensive home than allowed under FHA.
- Those who have considerable savings they do not want to use for a down payment.
- Those who want to cancel private mortgage insurance as soon as possible.
Unlike HomeReady home loans, the Standard 97% LTV loans have no income limits. For borrowers who have a high income, the Standard 97% LTV home loan can be a great option.
The Standard 97% LTV home loan is more flexible than HomeReady or other 3% down loans; however, it is stricter than other conventional loans with 5-20% down. For example, no investment or vacation homes are supported by these programs. Additionally, attendance at a homeownership education may be required to qualify.
Benefits of a HomeReady 97% LTV Mortgage
Fannie Mae’s HomeReady 97% LTV home loans are an excellent option for low-income earners. Some benefits of a HomeReady loan include:
- Renter income can be included in the application.
- Income from non-borrowing people living in the house can be counted toward the application.
- Gift or grant payments can be used for downpayment and closing costs.
A unique aspect of the HomeReady loan is the ability to count additional income sources when qualifying for a mortgage. This feature makes the HomeReady great for:
- Multigenerational households.
- Homebuyers who would like to rent a room out.
- Borrowers who have a roommate but want to purchase the home on their own.
Another perk of the HomeReady loan is that borrowers can buy 2, 3, or 4-unit homes and use the units as additional income. However, borrowers must live in the home.
Finally, the combined household income on loan can’t exceed 80% of your area’s AMI (area median income).
97% LTV Loans and Private Mortgage Insurance
The Standard 97% LTV and HomeReady loans come with private mortgage insurance (PMI), which is required on all loans with a down payment under 20%.
Related: What is Private Mortgage Insurance (PMI)?
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in mortgages for first-time homebuyers, conventional home mortgages, refinance loans, reverse mortgages, and FHA, VA, and USDA mortgage options. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.
To get started with a mortgage to buy your next home, please fill out our Quick Mortgage Application or contact us.