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FANNIE MAE HOMEREADY
DELIVERING LOANS TO PLANET HOME LENDING
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WHY THE HOMEREADY LOAN PROGRAM CAME TO BE THE COMMUNITY LENDING MORTGAGE
Fannie Mae reports a “demographic sea change” in the housing market, characterized by the rise of the Millennials, increased diversity, and a growing elderly population. A new household growth is being driven by traditionally underserved segments in which income tends to be stable.
The National Association of Realtors reports 14% of home purchases in 2014 were by a multigenerational household and 62% were comprised of minorities.
• Asian – 17%
• African American – 20%
• Hispanic – 25%
Identified household trends.
Adult children - 43%Parents - 8%Other relatives - 14%Domestic partners - 22%Non-relatives - 13%
Fannie Mae HomeReady
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• Low down-payment: LTVs up to 97% for a home purchase.
• Pricing: Better than or equal to standard loan pricing.
• Reduced MI coverage: Only 25% mortgage insurance coverage required for LTVs greater than 90%.
• Flexible Sources of Funds: Including gifts, grants, cash-on-hand and Community Seconds are allowed for the down-payment and closing costs.
• Homeownership Education: Helps the borrower become prepared for the responsibilities of homeownership.
• Landlord Education: Helps the borrower become an effective landlord.
BORROWER BENEFITS Fannie Mae HomeReady
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DU will check for income limits based on the census tract, and will return findings if the income limits have been exceeded.
• No Income Limits for properties in low-income census tracts, where the median tract income is no greater than 80% of the Area Median Income (AMI).
• 100% of the AMI is used for properties in high-minority census tracts and designated disaster areas. Census tracts where the minority population is at least 30% and the median tract income is less than 100% of the AMI.
• 80% of the AMI is used for all other properties.
An income eligibility lookup tool is available on the Fannie Mae website for the areas where DU is not able to verify census track AMI with FIPS code.
INCOME LIMITS Fannie Mae HomeReady
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Qualifying Note
If a property is located within a particular census tract that would be eligible under two separate sets of guidelines, the eligibility that is most favorable to the borrower would be used.
Example
A property is located in both, a high-minority census tract and a low-income census tract, Fannie Mae will apply the low-income census tract criteria with no income limits, instead of the high-minority census tract income limit of 100 percent of AMI.
INCOME LIMITS, CONT. Fannie Mae HomeReady
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• If the HomeReady program is not selected, DU will issue a message letting the lender know that the loan may qualify for the HomeReady program. The lender may then choose to rerun DU under the HomeReady program.
• If the HomeReady program is selected, DU will also issue a message letting the lender know if the loan does not qualify and why.
• DU applies all eligibility guidelines, MI requirements, and issues appropriate verification messages.
• A new field to enter a FIPS code is now available for use in cases where DU is unable to determine the census tract.
• DU added “Other Income” categories specific to this program.
– Boarder Income
– Non-Borrower Household Income
– Accessory Unit Income
– Housing Choice Voucher Program (Section 8)
UNDERWRITING HOMEREADY LOANS WITH DU Fannie Mae HomeReady
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LOAN FEATURES Fannie Mae HomeReady
1 UNIT 2 to 4 UNIT Loan Purpose Purchase
Limited Cash Out Refi (LCOR) Purchase Limited Cash Out Refi (LCOR)
Occupancy Owner occupied Owner occupied
Product Fixed Rate: 10, 15, 20 and 30 year terms ARM: 5/1 (2/2/5 caps only) 7/1 and 10/1
Fixed Rate: 10, 15, 20 and 30 year terms ARM: 5/1 (2/2/5 caps only) 7/1 and 10/1 ARMs are not permitted for 3-4 unit properties.
Property Type • 1 unit SFR • Condos (Fannie Mae eligible) • PUDs (Fannie Mae eligible) No 2-4 unit condo projects, co-ops or manufactured homes
• 2-4 units No 2-4 unit condo projects, co-ops or manufactured homes
LTV Purchase: • 97% fixed rate * see 95.01-97% LTV section • 90% ARM LCOR: • 95% fixed rate • 90% ARM
Purchase or LCOR: • 2 unit: 85% fixed rate, 75% ARM • 3-4 unit: 75% fixed rate only
CLTV To 105% with eligible Community Seconds Other subordinate financing per the Fannie Mae Selling Guide
To 105% with eligible Community Seconds Other subordinate financing per the Fannie Mae Selling Guide
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1 UNIT 2 to 4 UNIT 95.01 – 97% LTV
Purchase transactions are eligible as follows: • Property is a 1-unit primary residence and all
borrowers must occupy • Fixed rate loans only with terms up to 30 years • High Balance loans not permitted
Not allowed
Minimum Borrower Contribution $0 3% of sales price for LTV/CLTV/HCLTV > 80%
Assets
• Gifts, grants and Community seconds • Multiple Community Seconds up to a max of
105% CLTV • Cash on hand for down-payment, Closing costs
and prepaids, but not reserves
• Gifts, grants and Community seconds • Multiple Community Seconds up to a max of 105%
CLTV
Resale Restricted Properties
Age-restricted communities only
Not allowed
Buydowns
Not Allowed
Not Allowed
LOAN FEATURES, CONT. Fannie Mae HomeReady
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QUALIFYING INCOME 1 UNIT 2 to 4 UNIT
Non-Borrower household income
May be considered as a compensating factor in DU only;
NOT part of qualifying income or Income Limits
May be considered as a compensating factor in DU only;
NOT part of qualifying income or Income Limits
Non-Occupant co-borrower
Consider income, assets, credit and liabilities for qualifying,
and is included in Income Limits. LTV’S up to 95%
Consider income, assets, credit and liabilities for qualifying,
and is included in Income Limits. LTV’S up to 95%
Boarder Income
Include as qualifying income and in Income Limits
Not allowed
Rental Income
Not allowed
Include as qualifying income and in Income Limits
Accessory Unit Rental Income
Include as qualifying income and in Income Limits
Not allowed
LOAN FEATURES, CONT. Fannie Mae HomeReady
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Non-Borrower Household Income (NBHI) will be considered a compensating factor allowing a DTI ratio between 45% - 50%. DU will see this as a household compensating factor and will not issue an Ineligible recommendation due to the DTI.
Non-Borrower Household Income eligibility:
• No application required.
• Legal residency documentation is not required.
• Not required to be a family member.
• Income must equal to at least 30% of the total qualifying income.
• Standard Fannie Mae income verification is required based on the income type.
• No 4506-T or results required.
• Income not included as qualifying income or in the AMI income limits.
• They must sign a statement of intent to reside with the borrower for a minimum of 12 months. HomeReady Non-Borrower Household Income Worksheet and Certification (Fannie Mae form 1019).
NON-BORROWER HOUSEHOLD INCOME Fannie Mae HomeReady
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• Max LTV is 95%.
• Not required to be a family member.
• Income, assets, credit and liabilities are included in qualifying.
• Income is subject to HomeReady AMI income limits.
• No limitation on ownership of other property or the number of financed properties owned by the Non-Occupant Borrower.
NON-OCCUPANT BORROWERS Fannie Mae HomeReady
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IS THE BORROWER
ON THE LOAN? DOES THE BORROWER
LIVE IN THE HOME?
IS INCOME INCLUDED IN QUALIFYING
INCOME?
IS INCOME INCLUDED IN INCOME LIMITS?
Non-Occupant Borrower
YES NO YES YES
Non-Borrower Household Member
NO YES NO NO
NON-OCCUPANT BORROWERS VS NON-BORROWER HOUSEHOLD INCOME
Fannie Mae HomeReady
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Examples
NON-OCCUPANT BORROWERS VS NON-BORROWER HOUSEHOLD INCOME
NON-OCCUPANT BORROWER NON-BORROWER HOUSEHOLD INCOME
A young couple is buying a home. A friend is going to be a borrower on the loan, but she will not living in the home. The income, assets, credit and liabilities are considered in the DU underwriting to determine DTI and credit qualifying. The total income from all Borrowers will be subject to AMI limits for the area.
A college student is looking for a home, but her DTI is over 45%. Her best friend will move in with her so they can share expenses. Her friend’s income is equal to at least 30% of the borrower’s qualifying income. The friend will not be a borrower on the loan, but the verification of her income will be considered as a compensating factor in DU for the borrower to have a DTI between 45.01% to 50%. AKA: Extended-Income Household
Fannie Mae HomeReady
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Boarder Income
Boarder income is rent from someone sharing living quarters with the borrower.
• 1-unit properties only.
• Up to 30% of the qualifying income can come from boarder income.
• The borrower must provide receipt of rent for at least 9 of the most recent 12 months (averaged over 12 months) and documentation of shared residency for the past 12 months.
Rental Income
Rental Income is rent generated either from:
• 1-unit property with an accessory unit.
• 2-4 unit properties.
Note: If an individual is the source of boarder income or rental income, he or she cannot also be considered a non-borrower household member.
BOARDER INCOME VS RENTAL INCOME Fannie Mae HomeReady
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Examples
Boarder Income: A roommate that has lived with the borrower for the past 12 months, paying rent directly to the borrower and plans to live in the newly purchased home.
Rental Income: The home being purchased is a 1-unit property that has a garage apartment which includes a functioning kitchen and bathroom that can be rented out or is a 2-4 unit property.
BOARDER INCOME VS RENTAL INCOME
RENT PAID MONTHLY?
RENT FROM SOMEONE SHARING LIVING
QUARTERS?
RENT FROM A SEPARATE DWELLING UNIT (AS IDENTIFIED BY THE APPRAISAL) WITH
A KITCHEN AND A BATHROOM?
Boarder Income YES YES NO
Rental Income YES NO YES
Fannie Mae HomeReady
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Borrowers with non-traditional credit are eligible for the HomeReady Program subject to the following:
• The property must be a one-unit and all borrowers must occupy the property.
• The loan amount must meet the conforming loan limits — high-balance mortgage loans are not eligible.
• One borrower with traditional credit and a credit score must be on the loan.
• The borrower(s) with traditional credit and a credit score(s) must contribute more than 50% of the qualifying income.
• The income used to qualify the borrowers cannot come from self-employment.
• DU Approved/Eligible required.
NON-TRADITIONAL CREDIT Fannie Mae HomeReady
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This is an acceptable source of funds for the borrower’s down payment, funds for closing costs, and prepaid items only. Cash-on-hand may not be used to fund the borrower’s reserve requirement. Qualifiers to Cash-on-hand:
• The lender must document that the borrower customarily uses cash for expenses, and the amount of funds saved is consistent with the borrower’s previous payment practices.
• Funds must be on deposit within a financial institution or an acceptable escrow account at the time of application, or no less than 30 days prior to closing.
• A written statement from the borrower that discloses the source of funds and states that the funds have not been borrowed.
Note: Lender must determine that the borrower’s credit report and other verifications indicate limited or no use of credit and no depository relationship. Refer to Seller Guide for complete requirements.
CASH-ON-HAND Fannie Mae HomeReady
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Borrower-Paid MI
• Monthly
• Single Premium
Lender-Paid MI
• Single Premium
Financed MI
• Single premium MI may be financed up to the maximum LTV for the transaction, including the financed MI.
MI Coverages
MORTGAGE INSURANCE Fannie Mae HomeReady
Required MI Coverage
Loan Term
LTV 80.01-85% 85.01-90% 90.01-97%
Fixed rate: ≤ 20 years 6% 12% 25% Fixed rate and ARMs: > 20 year 12% 25% 25%
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EXAMPLES BASED UPON: $200,000 LOAN AMOUNT, 97% LTV, FIXED RATE LOAN
1. Based on typical MI industry rate as of September 2015
2. Single-premium lender-paid MI: Lender increases note rate to generate a premium coupon, using proceeds to but the MI policy; these scenarios based on typical MI industry rate as of 9/2015
MI COMPARISON: HOMEREADY VS STANDARD CONFORMING LOAN
HomeReady with Borrower- Paid
Monthly MI (25%)
Standard with Borrower-Paid
Monthly MI (30%)
HomeReady with Single-Premium
Lender-Paid MI 2 (25%)
Standard with Single-Premium
Lender-Paid MI 2 (30%)
Credit Score 740 680 740 700 740 680 740 700 Monthly MI Rate 1 0.77% 0.96% 1.10% 1.31% n/a n/a n/a n/a Monthly MI Cost ($) $128 $160 $183 $218 n/a n/a n/a n/a Single Premium MI Rate 2
n/a n/a n/a n/a 2.49% 3.05% 3.08% 3.85%
Fannie Mae HomeReady
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At least one borrower must complete the Homeownership Education for both purchase and refinance transactions.
• Must be through Framework, an online program approved by Fannie Mae.
• If a borrower is unable to complete the program online, Framework will provide a referral to a HUD-approved agency that meets the borrower’s needs.
• The course must be completed prior to the Note date.
$75 Fee
• The fee for the course is paid directly to Framework, not to Fannie Mae or the Lender. Lenders may provide a credit against closing costs to offset the $75.
Certificate
• The completion certificate must be delivered to Planet Home Lending with the closing package.
HOMEOWNERSHIP EDUCATION Fannie Mae HomeReady
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Availability
Framework is available in both English and Spanish and can be accessed 24/7. Borrowers taking the course can contact Framework’s customer service with questions at:
https://homeready.frameworkhomeownership.org/
Framework Customer Service: 1.855.659-2267
Previous Home-Buyer Education
Borrowers are not required to complete a Framework program if they have recently completed an education program with a HUD-approved agency. The document must be dated within 6 months prior to the loan application date and before September 30, 2016.
HOMEOWNERSHIP EDUCATION, CONT. Fannie Mae HomeReady
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Landlord Education
In addition to the Homeownership education, landlord education is required for HomeReady loans secured by 2-4 unit properties.
• At least one borrower must complete the Landlord Education for both purchase and refinance transactions.
• Must be conducted by a HUD-approved counseling organization or the lender. Fannie Mae’s publication, Becoming a Landlord: Rewards, Risks, and Responsibilities must be used by the lender or a publication that covers similar topics.
• The course must be completed prior to the Note date.
Certificate
• The completion certificate must be delivered to Planet Home Lending with the closing package.
Post-Purchase Support
• Framework will provide post-purchase support to borrowers in the form of ongoing communications. This support will not be triggered by the mortgage payments, but consist of ‘check-ins’ to see how the borrower is managing homeownership. Post-purchase support provides borrowers access to a homeownership advisor for the life of their loan.
LANDLORD EDUCATION & POST-PURCHAE SUPPORT Fannie Mae HomeReady
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Community Seconds are allowed with the HomeReady program.
• The Community Seconds program does not need to be approved by Planet Home Lending.
• The CLTV can be up to 105% on fixed loan products.
• Borrowers may have more than one Community Seconds lien (i.e., a third lien).
• Funds may be provided by:
o A regional Federal Home Loan Bank under one of its affordable housing programs
o A state or local housing finance agency
o A nonprofit organization
o A federal agency
o A municipality
o An employer
o State or
o County
COMMUNITY SECONDS Fannie Mae HomeReady
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The following documents are required for HomeReady loans:
• Homeownership Education completion certificate (all Loans)
• Landlord Education completion certificate (on all 2-4 unit Properties)
• Non-Borrower Household income Worksheet and Certification (FNMA form 1019)
HOMEREADY SPECIFIC DOCUMENTS Fannie Mae HomeReady
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HOMEREADY SAMPLE DOCUMENTS Fannie Mae HomeReady
Homeownership completion certificates, either sample is acceptable.
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HOMEREADY SAMPLE DOCUMENTS, CONT. Fannie Mae HomeReady
Only loans secured to 2-4 unit properties must include a Landlord Education Certificate.
Only used if the borrower needs income from a Non-Borrower Household Member to qualify.
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PHL CORE Seller Portal https://core.phlcorrespondent.com/core/
Fannie Mae HomeReady page https://www.fanniemae.com/singlefamily/homeready?cmpid=marqhomeready0915
HomeReady Product Matrix https://www.fanniemae.com/content/fact_sheet/homeready-product-matrix.pdf
Fast Facts for Loan Officers https://www.fanniemae.com/content/fact_sheet/homeready-loan-officer-facts.pdf
FAQs HomeReady https://www.fanniemae.com/content/faq/homeready-faqs.pdf
Extended-Household Income https://www.fanniemae.com/content/fact_sheet/homeready-extended-income-households.pdf
Rental & Boarder Income https://www.fanniemae.com/content/fact_sheet/homeready-boarder-accessory-unit-income.pdf
Non-Occupant Borrower Inc https://www.fanniemae.com/content/fact_sheet/non-occupant-borrower.pdf
HomeReady-MCM Comparison https://www.fanniemae.com/content/tool/homeready-standard-mcm-comparison.pdf
Framework Homeownerhip Education
https://homeready.frameworkhomeownership.org/
FAQs Framework https://www.fanniemae.com/content/faq/home-buyer-education-policies-faqs.pdf
Non-Borrower Household Income Worksheet & Certification (form 1019) https://www.fanniemae.com/content/guide_form/1019.pdf
Entering the Data into DU https://www.fanniemae.com/content/job-aid/desktop-Underwriter/topic/du_entering_the_data_for_a_homeready_loan.htm
Income Eligibility Lookup Tool https://homeready-eligibility.fanniemae.com/homeready/
Marketing Tools https://www.fanniemae.com/singlefamily/homeready-outreach-materials
RESOURCES Fannie Mae HomeReady
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