The current reality in the United States is that is costing more money each day just to get by. The consequence of this is that people are not putting money in their savings like they used to. The bad news about this is that people do not have money available for a down payment like they used to in reserves in order to buy a home. The good news is that there are new loan programs that will allow you to buy a home with no money down and nothing out of pocket at closing. You can literally buy a home with little or no money. Fannie Mae still has loan programs available that offer competitive interest rates for this type of loan program. You may have heard of it referred to as the My Community Mortgage or MCM program. To qualify for this program, there are some conditions that you will need to meet.
1. You will need a fico score of at least 620 to get the best rate and the lowest amount of mortgage insurance. Your credit scores are influenced by your credit account payment history, the amounts you owe versus your credit limits, the length or age of your active and to some extent your inactive credit accounts, recent credit accounts established, and the types or mix of credit accounts you have. If your credit is lacking there are some things that you can do to get your score up. The first would be to pay down debt. You do not want to be over 30% of your available credit. Paying on time is crucial. Late payments are a killer. One late payment can drop you score as much as 100 points in some cases. Don’t cancel old cards that you are not using. Part of your credit score comes from your credit history. When you cancel the card the history goes with it. Review 7 Tips to Raise Your Credit Scores.
2. Employed at your job for at least 30 days. In the best case scenario, you will need to be at your job for at least 30 days. Most loan programs require that you be at your job for at least 2 years to be able to qualify. The underwriter will analyze your paystubs and or W-2’s to determine your monthly income. Review how to calculate your monthly income.
3. You can have collection accounts. This includes unpaid bills such as credit cards and medical bills. If you have judgments and liens you will be required to pay those off in order to be approved for a loan. The most common judgment and liens are IRS and State Income Tax liens and delinquent child support claims.
4. No down payment required. If you do not have money for the down payment and/or closing costs, a seller is allowed to contribute both of these to you. The maximum amount of money the seller can give you (also known as: seller contribution) is 6% of the purchase price that you agree on. For example, if you agree on a sales price of $200,000 then 6% would be $12,000. Now, what Fannie May will not allow you to do is get money from the seller of the home if you do not put any deposit money down on your sales contract. Fannie Mae will only allow the seller to give you what you need to close your loan to pay for closing costs. On average, depending on whether you live in a high real estate tax area or not you will need anywhere from between 3% to the full 6% of the seller assistance if you are getting a loan for 100% of the sales price. In our example from above, you would be getting a loan for $200,000 with a sales price of $200,000.
5. You may need to have some money in the bank to be able to qualify. If you do not have any, you are allowed to get gift funds. You can get them from a family member or a relative only. You are technically not allowed to get gift funds from friends. If your only choice for gift funds if from a friend, route this money through a relative to give to you. A guideline to think about is that you will need at a maximum 2 months of “reserves”. How much is 2 months reserves? If you add up your housing expenses (mortgage payment, monthly real estate tax payment, monthly home owner’s insurance premium, mortgage insurance payment, and perhaps a home owners association monthly fee). If you know you are going to purchase a home and you can get the gift fund ahead of time (60 days in advance) get it and put it in the bank. You will have to provide two months of bank statements to prove your assets. Review more information on assets required to buy a home.
6. You do not need to be a first time home buyer to qualify. You can qualify for this program even if you have owned a home before. You will not qualify if you already own an existing property and you plan to keep it to rent. Also, you will not qualify if you have other rental properties.
7. Higher debt ration allowed. The Fannie Mae My Community Mortgage program will also allow you to have a debt to income ratio of up to 65%. Review Debt Ratio.
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