Basic Community Homebuyers Programs

The most widely available community lending initiative is sponsored by the Federal National Mortgage Association (Fannie Mae), and is offered by hundreds of mortgage lenders throughout the country. Several features of this program are as follows:

  • For loans up to $417,000, you may put down 5 percent of your purchase price; but only 3 of this 5 percent needs to come from your own savings or other available assets. If you can raise the other 2 percent as a gift from your parents, or maybe a grant or loan from a government housing agency or not-for-profit housing group, that's okay with Fannie Mae.
  • Some, but not all, lenders judge your credit on a case-by-case basis. You'll need good-to-excellent credit at the time you buy, but past blemishes and setbacks may be forgiven if you've since proven you can manage your finances responsibly.
  • This program is designed for households that earn less than 120 percent of an area's median annual income. In larger cities, this figure typically falls somewhere between $50,000 and $80,000. If you earn "too much," you still might use this or a similar program; you can buy a home in an area that's targeted for revitalization or gentrification.
  • Depending on the strength of your credit score and compensating factors, your total debt ratio can go up to .40—or maybe higher. In addition, this type of loan doesn't require cash reserves after settlement; however, that's still a good idea, if you can figure out how to do it. Also, any cash reserves you can put aside will count as a compensating factor.
  • Under the community-lending program sponsored by Fannie, you'll buy private mortgage insurance. Depending on the loan amount, your premium for mortgage insurance could add $500 to $1,000 (or more) to your closing costs, and perhaps $50 to $150 (or more) to your monthly mortgage payments. If you're cash short, your lender may permit you to pay these and other closing costs with a gift, grant, or borrowed funds.
  • To participate in this program, you must complete four to six hours of homebuyer education. You can meet this requirement by attending qualified home buying seminars that are regularly sponsored by participating mortgage lenders and Realtors. As an alternative, you can schedule a one-on-one homebuyer counseling session offered by mortgage lenders or not-for-profit counseling centers.

To finance a home through the community homebuyer's plan by Fannie Mae, call a Realtor to learn which lenders in your area participate in this program. Alternatively, watch your newspaper for announcements of lender and Realtor home buying seminars (offered weekly or monthly) and homebuyer fairs (usually offered in the spring of each year). Fannie's web site includes valuable information that describes a variety of community homebuyer programs and initiatives.

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