Mortgage giants Fannie Mae and Freddie Mac have made buying single-family homes and small multi-unit residential properties easier with their new products: HomeReady from Fannie Mae and Home Possible from Freddie Mac.
Buying a single-family home with each of these products can be done with as little as 3 percent down and the private mortgage insurance is priced as if you were putting down 10 percent, which makes the monthly payment lower. Also the minimum credit FICO score for these is down to 640, also allows borrowers who do not have perfect credit to use this product.
The Freddie Mac product, Home Possible, gets even more aggressive by allowing a 5 percent down payment for borrowers looking to buy a 2- to 4-unit building as long as they are going to occupy the property as their primary residence. When buying a 2-4, unit you can use 75 percent of the other units’ rent outside of the one that you will be occupying to help you qualify for the loan.
There are some restriction. You cannot make more that $84,000 per year to use this special product. There is no income limit, though, with properties that are in a low-income census tract area. Freddie Mac’s website allows you to check if it is in a no-income-limit zone.
You may be saying that I have heard that FHA has low down payment options for 1-4 units of 3.5 percent, and that is correct. The difference is that Home Ready and Home Possible can be used for all condos, where FHA will only finance a condo if it is on the FHA approved list, which is very limited. Also, FHA products have tougher guidelines for the appraisal as well as a self-sufficiency test for the rents of the property that make it tougher to approve than a Home Possible product.
Usually in the past if you were buying a 2- to 4-unit building, even if it was a primary residence, a borrower would have to put down 25 percent. llowing borrowers to use this product with only 5 percent down has brought many more buyers of these multi-family unit into the market place.
We should see some nice appreciation in this segment of the market.
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