Conventional 97 percent LTV: Buy a 3 percent Down Home In 2020

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The purchase program of 97 per cent loan-to – value (LTV) allows homebuyers to purchase a single family home, condo, co-op or PUD with only a 3 per cent down payment. The program is named for the remaining mortgage balance of 97 per cent.

Buyers now have a real alternative to FHA, as conventional 3 percent down loans are a reality. Although the FHA loan has its advantages, it comes with high upfront charges and permanent mortgage insurance. The new conventional 97 percent LTV program represents a safer bet for the future, requiring no upfront mortgage insurance fees and monthly PMI cancelations.

2020 LTV Home Buying Recommendations for 97 per cent
The new loan down to 3 per cent is similar to existing conventional loan programs. Tariffs are small, and it is readily available to borrowers offering the plan.

Many home buyers today will meet guidelines for this new lending option. Three per cent down loans will be considered for approval with the following characteristics:

  • The mortgage is a loan made on a fixed rate.
  • The property is a single-unit family home, co-op, PUD, or condominium.
  • In the last three years at least one buyer hasn’t owned a home.
  • The land is to be the primary residence of the owner.
  • The amount of the loan is $510,400 or under

Such features ideally fit with the profile of the typical first-time homebuyer. For example , the majority of buyers today are searching for a one-unit home (as opposed to a duplex or triplex), or a condo they expect to stay in as their primary home.

According to the National Association of Realtors, the average home price of today is about $250,000, placing most homes nationally in reach with just 3 per cent down payment.

Conventional LTV credit requirements of 97 per cent
Many homebuyers assume they need impeccable credit scores to qualify for a 3 percent down loan. That’s not exactly the case.

A borrower can have a score as low as 620 and still qualify according to Fannie Mae ‘s Loan Level Price Adjustment (LLPA) chart.

What is even more impressive when it comes to reviewing the LLPAs is that some borrowers will receive the same or lower rate for a loan down 3 percent compared to those down 20 percent.

For example, because of their credit score and LTV combination, a borrower putting 20 per cent down (80 per cent LTV) and a 660 score will receive a rate increase of about three-eighths of one per cent. The same borrower who puts down 3 percent will get roughly the same rate.

At first, that doesn’t make sense until you realize that mortgage insurance takes Fannie Mae and the lender’s risk off. If the borrower defaults, the mortgage insurance company will pay the mortgage owners back. The loan down 20 percent does not require PMI, but the loan down 3 percent does.

Conventional LTV credit requirements of 97 per cent

Many homebuyers assume they need impeccable credit scores to qualify for a 3 percent down loan. That’s not exactly the case.

A borrower can have a score as low as 620 and still qualify according to Fannie Mae ‘s Loan Level Price Adjustment (LLPA) chart.

What is even more impressive when it comes to reviewing the LLPAs is that some borrowers will receive the same or lower rate for a loan down 3 percent compared to those down 20 percent.

For example, because of their credit score and LTV combination, a borrower putting 20 per cent down (80 per cent LTV) and a 660 score will receive a rate increase of about three-eighths of one per cent. The same borrower who puts down 3 percent will get roughly the same rate.

At first, that doesn’t make sense until you realize that mortgage insurance takes Fannie Mae and the lender’s risk off. If the borrower defaults, the mortgage insurance company will pay the mortgage owners back. The loan down 20 percent does not require PMI, but the loan down 3 percent does.

On a monthly basis, mortgage insurance would make the 3 per cent down option more costly. The borrower’s down payment requirement, however, is significantly lower, allowing them to buy a home much sooner, or buy it at all.

And remember that non-FHA mortgage insurance is cancellable. When the loan balance reaches 78 per cent of the value of the property, PMI drops off automatically.

Homeowners who choose the conventional 97 percent LTV loan option will end up with a great fixed interest rate, and after paying down the loan balance, no more PMI.

Tariffs for LTV home purchases 97 per cent

Mortgage rates are based on regular Fannie Mae rates for the 3 percent down payment plan, with a small rise in the cost.

But those loans will come with rates that are only about one-eighth to one-fourth of a percent higher than the rates available to borrowers putting down 5-10 percent.

The fee or rate increase is minimal compared with the value added from previous home purchases.

Someone buying a $250,000 home would pay about $60 more a month by choosing a loan option of 97 percent compared to a loan down of 5 percent.

Yet the buyer reduces their total cost of buying up front home by more than $5,000.

The time it takes to save an additional 2 per cent down payment could lead to higher house prices and harder down the road qualifying. It could prove much cheaper and faster for many buyers to immediately opt for the 3 per cent down mortgage.

LTV Home Purchase FAQ 97 per cent

Does the 3 per cent down payment plan have a minimum credit score?

To get any Fannie Mae-backed loan, borrowers need a credit score of 620 or higher. The exception would be non-traditional credit holders who have no credit score. However, check with your lender as they might require a higher score than traditional credit with a minimum score of 640 or 660 for this program will require.

Can I use the gift funds on down payment?

Hey. Fannie Mae states that gift funds may be used for cost of down payment and closing. There is no minimum amount the borrower has to put out of their own funds for the purchase.

Can I buy a townhouse or a condo?

Hey. Buyers can buy a condo, a townhouse, a house or a co-op for as long as it is just one unit.

Can I buy a 3 per cent down manufactured home?

No. No. With this program manufactured houses are not allowed.

Can I buy a second home or a real estate investment?

No. No. The loan plan of 97 per cent can only be used to purchase a primary residence.

I owned a house two years ago but rented since then. Do I want to qualify?

Nonetheless. You have to wait until three years have passed since you owned any property in a house. You are considered a first-time home buyer at this point, and you will be eligible.

Do mortgage insurance firms offer LTV home loans to PMI for 97 per cent?

Hey. Hypothecary insurers are on board the programme. You don’t need to find a PMI company as your lender will order you mortgage insurance.

What is insurance on mortgages?

Mortgage insurance varies widely from $75 to $125 per $100,000 borrowed, per month, based on credit score.

Can I get a matching 3 per cent down jumbo loan?

No. No. AKA conforming jumbo loans โ€“ those above $510,400 โ€“ are not available at this point, despite a high balance.

I am already approved to put down 5 percent, but instead I would like to make a down payment of 3 percent. Can I do the same?

Hey. If they offer the programme, your lender can re-underwrite your loan. Keep in mind that with the higher loan amount and potentially higher rate, your debt-to – income ratio will rise.

What is the debt-to – income ratio (DTI) for the LTV program of 97 per cent?

Your overall profile including credit score will set your maximum DTI. Although there is no hard and fast number, the majority of lenders set a maximum DTI of 43%. That means your future principal, interest, tax, insurance, and HOA dues plus all other monthly debt payments (student loans, minimum credit card payments) can be no more than about 43 percent of your gross income.

Can I refinance the 3 per cent down program?

Hey. You may be able to refinance up to 97 per cent of the current value if you have an existing Fannie Mae loan. This could be of benefit to homeowners who are not eligible for HARP because their loan has been opened after May 31, 2009.

Why is the software only for home buyers first time?

Latest research by Fannie Mae showed that the greatest obstacle to homeownership was the down payment demand for first time homebuyers. The minimum down payment was lowered to spur more people to buy their first home.

Are there sales limits?

The regular 3 per cent down plan does not set any income limits. However, the 97 per cent HomeReady loan allows the borrower to be at or below 80 per cent of the median income of the city.

What is a mortgage under HomeReady?

This is a 3 percent downward program. It has built-in flexibilities, such as using income to benefit from non-borrowing members of the household.

What is the Possible Advantage program at Home?

This is the 3 per cent down home buying program for Freddie Mac. It is a lot like the HomeReady from Fannie Mae. Borrowers must not make more than set income limits, and they must buy a primary home.

Apply for the LTV home purchase program of 97 per cent

All that are interested in the latest down 3 per cent services should apply today. This type of mortgage is available from lenders across the country straight away.

A seemingly small change to the rule means borrowers can accomplish their homeownership goals sooner, with less money up front.