This program was designed by Fannie Mae to provide low rates, minimal risk-based price adjustments, and reduced mortgage insurance costs to home buyers who meet a few requirements. In this post, we’ll discuss the benefits, how to qualify and how to determine your eligibility.
There are three major benefits to this program.
LOW RATES AND RISK-BASED-PRICE-ADJUSTMENTS
First, this program has no loan-level-price adjustments (also known as LLPAs). LLPAs are all of the reasons you may have to pay more for your loan due to risk to the lender. These LLPAs can include:
- FICO score – Whether you have a 620 or 820 FICO score, everyone who is approved gets the same interest rate pricing
- Down payment – On a regular conventional loan, Fannie Mae will adjust your pricing based on the size of your down payment. Larger down payments will result in better pricing. On a My Community Mortgage you get the same rate regardless of your down payment.
- Property type – Fannie Mae will increase the cost of the loan if the property type is considered a higher risk. This is common for condominiums, duplexes, triplexes, or fourplexes. However, these adjustments do not apply on this product, making this product a go-to product if you’re buying one of these property types. This is very common for homebuyers who are buying a condominium and not putting 25% down, which normally results in an extra cost of .75% in fee.
- Subordinate Financing or Second Mortgages – Fannie Mae charges more on loans if there is a second loan being used, which can reduce a buyer’s minimum down payment. This product does not have any additional charges if there’s a second mortgage.
AFFORDABLE PRIVATE MORTGAGE INSURANCE
Second, these loans have reduced mortgage insurance costs. When a lender orders mortgage insurance for a conventional loan (also known as private mortgage insurance or PMI), the cost is determined by many factors. One of the factors is the “coverage” requirements. On My Community Mortgages, the coverage requirement by the lender is substantially less, resulting in cheaper mortgage insurance costs. Below is a table comparing the PMI coverage for a regular conventional loan versus a My Community Mortgage.
PMI Coverage for Fannie Mae loans (includes 25-year, 30-year and 40-year loan terms)
||Less than 5% down
|PMI Coverage Amount for a regular Conventional Loan
||12% PMI Coverage
||25% PMI Coverage
||30% PMI Coverage
||35% PMI Coverage
|PMI Coverage Amount for a My Community Mortgage
||6% PMI Coverage
||12% PMI Coverage
||16% PMI Coverage
||18% PMI Coverage
To see how this lower PMI coverage can reduce your PMI, you can read more about pricing the PMI here:
REDUCED DOWN PAYMENTS
Third, this program has reduced down payment requirements. This program allows DPA’s (Down Payment Assistance) to assist in a down payment that can provide as little as zero down on a purchase. Without a DPA, this program allows 5% down like a regular conventional loan. However, it does allow as little as 5% down on a 2-4 unit property, which is less than a regular conventional loan. When there is a DPA, the mortgage and DPA can reach as high as 105% of the home value to include closing costs if the DPA is allowed to cover settlement charges in addition to the down payment.
For those who are unfamiliar with DPA’s, they are small community loans recorded in conjunction with a first mortgage. In this case, it would be a small DPA loan funded with a My Community Mortgage.