Acquiring a loan may be crucial when you are facing a difficult financial situation, especially for real estate investors. If you are purchasing a home for the first time, you are looking to refinance, or you are financing any real estate investment, you can get a real estate loan that can help. Our work at Money Lender Loans is to ensure you get the best solution to financing any project you wish to do. Our real estate loans include, among others, non-traditional, purchase, Fannie Mae, and refinance loans. We are happy to serve companies and individuals in Orange County seeking to acquire any of these loans. In this article, we focus on Fannie Mae loans and everything it entails.
A General Overview of Fannie Mae
Fannie Mae, formally known as the Federal National Mortgage Association, is an enterprise sponsored by the government (GSE). That is, it is a publicly traded enterprise that works under Congressional agreement. This company serves to realize homeownership for individuals in California and other states, especially those that might be struggling financially. The company has played a major role in the housing sector since its establishment in 1938 after the Great Depression.
How Does Fannie Mae Work?
Fannie Mae only functions in the secondary mortgage market. This means that Fannie Mae loans essentially come from outside lenders. The company normally purchases mortgages from private lenders and financial institutions like banks, adds them and converts them into securities that are backed by a mortgage. It then sells these securities to different investors. In doing this, Fannie Mae makes sure that there is market liquidity. Market liquidity means that the mortgages can be sold and bought easily. Market liquidity also benefits private lenders since it leaves them with sufficient security that makes them work with several borrowers.
Fannie Mae Lenders
For a lender to do business with this company, they have to follow the process of application and meet particular rules. For example, they are prohibited from doing anything crafty while handling subprime mortgages for individuals with low credit rankings and those who have less income requirement than the expected.
In return, Fannie Mae bears the risk that comes with borrowing and ensures the mortgage lenders are protected when homeowners default. Fannie Mae conducts business with a large number of different moneylenders that, occasionally, homebuyers do not realize that it is the company that guarantees their loans.
Fannie Mae Loans
Fannie Mae deals with processing loans only for residential assets. It backs loans up to $453,100 and up to $679,650 in case you are purchasing a family home in an expensive area.
Requirements to Secure a Fannie Mae Loan
To be eligible for this type of loan, you must look for a licensed lender and fill uniform loan application forms for residential properties. We recommend that you spare some time and put in order all your financial documents which include your tax forms and bank statements before beginning the process. Your lender will consider several factors that will help determine whether you qualify for the loan. Such factors also determine the amount of money you can borrow and how your loan interest rate will be. The factors include;
- Your employment record
- Your monthly expenses
- Your total monthly income
- You credit ranking and payment history
- You property (retirement accounts, checking and savings)
Getting a loan might be quite difficult if you do not meet these requirements. Even though we have exceptions, typically, your debt-to-income (DTI) ratio cannot go beyond 36 percent of what you earn monthly except if you have good financial assets and FICO credit ranking. DTI ratio refers to how your salary builds up in opposition to the debt amount you have. To qualify for a loan with fixed interest rates, you must have a credit ranking of at minimum 620. For an unfixed interest rate, you will need a minimum credit ranking of 640.
If you have a higher credit score, you can have access to very low interest rates. You may also be able to make a minimum down payments (at least 3%) in case you are a first-time buyer of a house. However, if you try getting Fannie Mae loan using a bad credit score, you may be required to provide proof that you will handle it.
How Fannie Mae Loans Work in California
When you are looking to buy a home, you should first meet with a loan expert to discuss the Fannie Mae program. You then have to provide evidence of your income and the real estate agent will ensure the home you want to buy is in the exact location as approved by the program. You then have to fulfill the requirements mentioned above for you to qualify. After you meet the requirements, you have to undergo the Homeowner Education Course which will give insight on home ownership and maintenance. The course also provides beneficial details about the process of home ownership.
If you are to get help for your down payment, you will have to undergo the Community Seconds Course. An agent then goes through the assistance program of the down payment to ensure it is Federal Housing Agency approved. If a family member is to assist you with the down payment, they will also have to undergo this course. If you don’t have internet access, you can take this course over the cellphone. You then have to work out with your agent on the options. The options are also available to borrowers that have disabilities. After completing the course, you can also undergo additional homeowner counseling courses. The more knowledge you have, the more you will be able to manage your home. You can also get a credit worth $500 to use as one of your closing packages.
The most important thing you have to do is to get a home loan officer who is licensed and experienced enough to walk you through the program. This officer will ensure you can access all the educational requirements you need to undergo and that you are capable of completing all of them as required by Fannie Mae.
California Fannie Mae Loan Features
We have several great features of Fannie Mae loan program that makes it appealing to many homebuyers. For instance, you can get a maximum of 97 percent of the mortgage to the value of the buying price of the house. This means that if your home is located in an area that has low income, and you also earn a low income, you can take out the mortgage for 97% of the value of the house. This makes the down payment affordable.
A Fannie Mae program is unique in several ways. Its benefits are not limited only to first-time homeowners. If you had bought a home before and you are planning to relocate, you may be eligible for this program. You aren’t excluded from acquiring the loan just because you have purchased a house before.
We also have cancellable loan insurance which is part of the Fannie Mae program. Once you have paid an amount that equals 20% of the home value, you can cancel the insurance if paying it is not affordable. In addition, if you want to refinance your home and Fannie Mae guaranteed the mortgage, it may be possible for you to borrow a maximum of 95% of the mortgage to the value of the home.
The best feature about this program is that it is not a must you have your down payment total amount in your bank and provide proof that the money was there for a particular time frame. You can use grants and gifts to make a down payment and also to pay the costs at closing. You can even utilize the Community Seconds course for closing costs or down payment. This makes it possible for people who might not fulfill the loan requirements to own homes.
Benefits of Securing a Fannie Mae Loan in Preventing Foreclosure
Fannie Mae Company provides certain services to eligible borrowers. The services include loan modification, forbearance, and refinancing.
Due to the mortgage meltdown, the company started a loan modification program. This alters the terms of a pre-existing loan so that you can avoid defaulting. If you default, you may end up in home foreclosure and eventually losing your home. The modifications that can be made include extending the period of the mortgage, lowering your interest rates, changing from an adjustable interest rate to a fixed rate and adding the total past due amount to the principal owed.
Any option you go with may provide a huge relief in the event of a foreclosure. For instance, extending the mortgage timeframe often lowers monthly payments which help you repay without a financial strain. You also have the opportunity to clear the loan without having to worry about home foreclosure. To be eligible for a loan modification you have to be in a difficult financial situation that is bound to last for a long time. Preventing foreclosure may be difficult, but a loan modification program provides worthy alternatives for homeowners that have Fannie Mae loans.
We have certain options to refinance. For instance, traditional refinance can enable you to apply, through a money lender, various loan terms with the aim of cashing out on equity in your home or lowering what you pay monthly. To qualify for refinancing, you must meet similar qualifications like in regular loan applications. The qualifications include the desired credit score and the necessary financial documents. In addition, your home has to be evaluated to find out its fair market value. If you can’t qualify it, you might be entitled to the Home Affordable Refinance Program (HARP) by Fannie Mae. You have to be up to date on your loan payments. However, it may still be beneficial for you since you can get a lower interest rate even if your loan amount is more than what your home is worth.
To be eligible for HARP, one of the requirements is for you to have made up-to-date monthly payments in the past 12 months. The ratio of your home mortgage to that of its value should be higher than 80%. This means you will have not more than 20 percent equity on the home. For instance, if the value of your home is $200,000 and the amount of your loan is $195,000, it means the ratio of your home value to the loan is 97.5% which meets this qualification. In California, A Fannie Mae loan qualifies for HARP, but you must have had your house purchased earlier than 31st May 2009.
If the above two are not possible, you can apply for forbearance to prevent home foreclosure. Here, you can lower the amount of your mortgage or don’t pay it off completely for the timeframe that you and your creditor have agreed upon. Even though at the end of the day you still have to pay the whole amount that you owe, you may be relieved during a hard time that is only temporary. You and your lender can agree so that you pay the additional amount you owe when the forbearance timeframe ends or add part of it to the monthly payments of your mortgage.
How Do Fannie Mae Loans Compare With FHA Loans?
If you are buying a house for the first time, you may qualify for an FHA or a Fannie Mae loan. Both of them are attractive since they require low down payments. However, we have differences when it comes to eligibility and credit scores. Let’s have a look at how they compare;
Neither do the two give out loans. The FHA insures loans in order to protect lenders from homebuyers who default. This enables the lenders to lend even borrowers that are highly risky. That is, those that have little capital to make down payments and those that have lower credit rankings. Fannie Mae, on the other hand, is managed by the government agreement which purchases mortgages from lenders, thus, freeing up their assets with the aim of guaranteeing more mortgages for economic growth and stability. As a borrower, you can be eligible for both FHA and Fannie Mae loans under different terms.
Fannie Mae and FHA Eligibility
Lenders consider monthly income, credit score, and the ability to make a down payment when guaranteeing FHA loans. You need to have a credit ranking of at least 500 to qualify for the loan. If you have a credit score of between 500 and 580, you have to make a 10% down payment. If your credit score is higher than 580, you qualify for at least a 3.5% down payment. The down payment may also originate from the credit of the seller in the transaction. This makes FHA loans good for first-time homebuyers who don’t have equity in other assets or those that do not have adequate savings to make down payments.
When talking about adequate income to make your monthly payments, an FHA loan has a 31 to 43 DTI ratio where 31 represents the front-end DTI (the percentage of monthly debt payments divided by the monthly income). The 43 represents the back-end DTI (it adds the loan into the monthly debt payments). Lenders do not want your debt per month to go beyond 43% of your income per month. This reduces the danger of financial difficulty.
As we stated earlier about Fannie Mae, you need a credit score of at least 620 to acquire fixed-rate loans and 640 to get adjustable-rate loans. This is not as attractive as in FHA loans. The technical down payment is at least 5% when getting fixed-rate loans and 10% when acquiring adjustable-rate mortgages. However, Fannie Mae has a 3% down payment initiative for those borrowers that have a higher credit score and are first-time homeowners. A multi-unit home requires a higher down payment.
On DTI evaluation, Fannie Mae proves to be more lenient as compared to FHA due to its higher credit ranking standards. By July 2017, the company had increased its DTI ratio maximum. This means if you have a DTI that ranges between 45 and 50%, your loan is approved. However, this still depends on your credit score, monthly income, and your assets.
When looking for a loan to secure, remember that FHA loans are advantageous to borrowers with generally lower credit standards and seller credits that may help when it comes to a down payment. Fannie Mae, on the other hand, requires you to have higher credit scores but tighter margins are allowed in the general monthly debt obligations.
Find a Trusted Real Estate Loan Lender Near Me
If you want to be part of the Fannie Mae loan program, we advise that you work with a lender or agent that has knowledge of how the program works. Money Lender Loans has trained, experienced mortgage officers with a specialty in Fannie Mae loan programs in Orange County, California. We are always looking to assist borrowers to purchase their own homes. We will guide you through the process and make it easy for you to complete all that the program requires. Call our real estate loan lender at 949-409-4372 for more details on loan processing.