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.
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%.
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.