Loan Modification

Better than FHA? Fannie?s My Community Mortgage

By Gina Pogol

With FHA restructuring its mortgage insurance premiums on October 4th, it’s probably time to take a look at other financing options. Many folks don’t realize that Fannie Mae and Freddie Mac offer low down payment options too. For example, Fannie Mae’s My Community Mortgage allows qualifying borrowers to buy a home with only 3% down, no upfront mortgage insurance premium, and pay a very low monthly mortgage insurance fee.

The MCM mortgage insurance requirement is only 18% coverage on a 97% loan, which costs as little as $62.50 a month per $100,000 financed. FHA’s mortgage insurance coverage costs 1% upfront plus .85% each year, or $1,000 upfront plus $70.83 a month on a $100,000 loan.

My Community Mortgage offers underwriting flexibility, terms of up to 40 years (lowering your mortgage payment and allowing you to qualify for a larger loan), and includes ARM mortgages with rates fixed for 5, 7, or 10 years. It can even be combined with Community Seconds, which are second mortgages provided by housing agencies and other organizations, so that qualified borrowers can buy a home with no down payment and pay no closing costs out of pocket. You can choose to make interest-only payments, and you can even buy a 2-to-4 unit property if you put at least 5% down. Extra flexibilities include special provisions for teachers, police officers, firefighters, and health care workers, and people with disabilities or a family member with a disability. Finally, MCM mortgages are not subject to the same loan level pricing adjustments (LLPAs) that other conventional mortgages may be saddled with.

MCMs can also be used to refinance (no cash out allowed) to 97%, which may come in handy if your property has lost value recently.

So, what’s the catch?

There may be income restrictions. Borrowers must in most cases earn no more than the median annual income for their area. There are exceptions for Fannie Mae Neighbors areas and the programs for teachers, the disabled, health care workers, and first responders.You can search for the income limit for your area HERE.

You cannot have an ownership interest in any other residential real estate. That doesn’t mean you have to be a first time home buyer, but that you can’t currently own other residential property.

In many cases, a Community Mortgage may be less costly than an FHA loan. If you are looking for a loan with a low down payment requirement, consider both options and have your loan officer run you some numbers for both options before making a decision.

Full post as published by FHA Mortgage Guide on September 10, 2010 (boomark / email).