Second, FHA loans remain popular with borrowers
with no (or extremely low) credit. Home Possible Advantage and HomeReady typically require a minimum
credit score of 620. FHA loans may be manually underwritten by an institution with an appetite for taking on
more credit risk.
Finally, FHA loans allow contributions of up to 6 percent from an interested third party regardless of LTV.
These contributions are limited to just 3 percent for
Home Possible Advantage and HomeReady mortgages in which the LTV is 90 percent or more.
For qualified borrowers, a Home Possible Advantage or HomeReady mortgage can offer significant cost
savings over an FHA loan — not just in the lower downpayment, but throughout the life of the loan. Originators who are committed to finding the best product
for their borrowers should be able to clearly articulate
the eligibility criteria, income-verification process and
homebuyer-education requirement for these products
to borrowers and real estate agents.
n n n
FHA loans will likely always be a staple mortgage product for our industry. The dynamics of the housing
market, however, are always in a state of change, making
the need for additional financing options for low- and
moderate-income buyers a critical component to
affordable homeownership. n
Income limits are waived for low-income census tracts.
Non-occupying co-borrowers may be on the loan, even
if they already own a home, however. The LTV is reduced
to 95 percent in these cases.
A limited cash-out option is available for borrowers
seeking to refinance with a HomeReady loan. Refinancing LTV maximums are set at 95 percent for mortgages
not actively owned by Fannie Mae, and 97 percent for
loans that are owned or serviced by the GSE. Similar
to Freddie Mac’s Home Possible Advantage program,
HomeReady allows up to 105 percent for the combined
LTV if the borrower is receiving secondary financing
through a Fannie-qualified “Community Seconds”
Details in common
Both of these GSE loans options offer similar, yet distinct,
features based on the borrower’s income, the location
of the home, homebuyer education-course options and
whether all borrowers will live in the home. Now, let’s
explore a few details these products have in common.
Both GSE home-loan products allow for flexible
financing options, as well as reduced mortgage-insurance rates when compared to FHA loans, and the
ability to terminate the monthly mortgage insurance
coverage once the LTV ratio is at 80 percent or lower.
Additionally, these products allow for flexible downpayment sources, including gifts and “mattress money”
(money saved at home).
For cash saved at home, borrowers will be required
to verify the source of the money and the time it took
to save and deposit it with a financial institution prior
to the loan closing. This makes homeownership possible for borrowers who may have little to no credit as
a result of limited experience banking with a financial
Boarders income from a roommate or cohabitant
can be counted as income for the repayment of the
loan for each of the GSE options. Borrowers must be
able to provide proof of the receipt of this income,
which could include voided checks and proof of shared
residency. Downpayment assistance through a qualified second-mortgage source gives Home Possible
Advantage and HomeReady borrowers the option
to achieve homeownership with a combined LTV up
to 105 percent.
Ready to choose
With a flexible source of funds for closing financing
options, a downpayment of only 3 percent — versus
3. 5 percent for FHA — as well as higher LTV options
and the discounted cost for mortgage-insurance prem-ums, it’s easy to see why Home Possible Advantage
and HomeReady are competitive with FHA loans. So
why do so many originators still prefer FHA products?
First, and perhaps most importantly, FHA is a widely
understood product. Its longevity means originators at
all stages of their careers are familiar with its requirements and know how to advise borrowers through the
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