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Fannie Mae MyCommunityMortgage Program Overview

Fannie Mae MyCommunityMortgage Program Overview

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

Please note that Fannie Mae replaced the MyCommunityMortgage Program with the Home Ready Mortgage Program at the end of 2015 and is no longer offered. We provide the MyCommunityMortgage Program overview below for your reference.

Fannie Mae offers the MyCommunityMortgage Program to help first-time home buyers and individuals with low-to-moderate incomes and limited resources afford mortgages. Fannie Mae also offers programs that offer similar borrower benefits that are targeted to certain population segments including the Community Solutions Program for public safety, education/teachers, military and health care professionals.

The program allows first-time home buyers to buy a home with a down payment of as little as 3.0% of the property purchase price and no personal financial contribution.  The program is similar to Fannie Mae's 3% Down Payment / 97% LTV mortgage program but has more flexible borrower qualification requirements especially as it relates to a borrower's credit profile.  For example, a borrower with no or limited traditional credit history may be eligible for the MyCommunityMortgage Program.  To be eligible for the 3.0% down payment / no personal financial contribution program the borrower must be a first-time home buyer, obtain a 30 year fixed rate mortgage and meet other borrower qualification requirements including maximum income limits.

Key Fannie Mae MyCommunityMortgage Considerations
Pros
  • Ability to purchase a home with low down payment and no borrower contribution
  • Does not require up-front or ongoing FHA Mortgage Insurance Premium
  • Total monthly housing expense typically comparable to FHA Mortgage Program
  • More flexible mortgage qualification requirements
Cons
  • Typically higher interest rate than other low / no down payment mortgage programs
  • Requires borrower to pay ongoing Private Mortgage Insurance (PMI) on monthly basis
  • Borrower income limits
  • Loan limits

The borrower can combine a MyCommunityMortgage with a personal gift, employer assistance program, down payment assistance program or qualified subordinated second mortgage to pay for your down payment, closing costs and property renovations, allowing the borrower to purchase a one unit property with no personal financial contribution

A qualified subordinated second mortgage, also referred to as a Community Seconds Mortgage, is not offered by Fannie Mae but rather by a federal agency; a municipality; state; county; state or local housing finance agency; nonprofit organization; a regional Federal Home Loan Bank under one of its affordable housing programs; or, an employer. The combined loan-to-value (CLTV) ratio of the first mortgage plus the qualified second mortgage can be up to 105%.  CLTV equals the sum of the amounts of all the mortgages on a property divided by the fair market value of the property.  For example, if the property purchase price is $100,000 a qualified borrower can obtain a Fannie Mae MyCommunityMortgage plus a Community Seconds mortgage for a total loan amount of $105,000.  The borrower can use $100,000 from the two mortgages to purchase the property and $5,000 to pay for closing costs and renovations.

The MyCommunityMortgage Program requires that the borrower purchase private mortgage insurance (PMI), which is an ongoing monthly cost in addition to your monthly mortgage payment.  In short, PMI protects the lender in the event that the borrower defaults on the mortgage.  The amount of PMI the borrower is required to pay depends on the borrower’s credit score and the size of the down payment the borrower makes, with the larger the down payment, the lower the required PMI.  The borrower may be able to include the PMI in the mortgage amount as long as the combined loan-to-value (CLTV) ratio does not exceed 97% for a fixed rate mortgage or 90% for an adjustable rate mortgage (ARM).

Additionally, the MyCommunityMortgage Program typically only applies to conforming loan amounts which limits the size of mortgage you can obtain.

The MyCommunityMortgage Program also only applies to owner occupied properties. You can use the MyCommunityMortgage program to purchase properties with up to four units -- for example, an apartment building with four units -- but at least one of the units needs to be owner occupied or lived in by the individual(s) who obtained the loan to purchase the property.

MyCommunityMortgage program eligibility and down payment requirements vary depending on the number of units in the property as well as the mortgage program.  If the borrower is purchasing a property with two-to-four units, the borrower is required to make a minimum down payment of 5.0% of the property purchase price and a minimum personal financial contribution of 3.0% of the property purchase price.  If the borrower selects an adjustable rate mortgage (ARM) instead of a fixed rate mortgage, the borrower is required to make a minimum down payment of 10.0% of the property purchase price and a minimum personal financial contribution of 3.0% of the property purchase price.  As a reminder, the no personal financial contribution program is only available for the purchase of single unit properties.

Along with their mortgage payment, the MyCommunityMortgage program requires borrowers to pay property tax, homeowners insurance and PMI into an impound account on a monthly basis.  An impound account is a trust account controlled by the lender from which these fees are paid when due.

Another drawback to the MyCommunityMortgage Program is that the borrower is typically required to pay a higher interest rate than he or she would pay on an FHA Mortgage or a conventional mortgage if the borrower makes a down payment of at least 20%.  We recommend that you contact multiple lenders in the table below to learn more about the low down payment programs they offering.  Comparing lenders and programs enables you to find the mortgage that best meets your needs.

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FannieMae MyCommunityMortgage Program Borrower Qualification

In order to qualify for the FannieMae MyCommunityMortgage Program a borrower must meet certain eligibility requirements.  The eligibility requirements vary depending on the size of your down payment, if you are a first-time home buyer, the number of units in the property you are buying (you can use the program to purchase properties with up to four units) and the type of mortgage program you (fixed rate mortgage or adjustable rate mortgage (ARM)).  In order to be eligible for the 3.0% down payment / no personal financial contribution MyCommunityMortgage Program the borrowers must meet the following requirements:

There are also limits to the amount of income a borrower can make to be eligible for the MyCommunityMortgage Program. A borrower’s income cannot exceed 100% of area median income (AMI) or 115% of AMI in non-metro areas.  Additionally, a borrower’s income cannot exceed the following high-cost area limits:

AMI is determined by the Department of Housing and Urban Development. View AMI in your area on this interactive map

The FannieMae MyCommunityMortgage Program also typically requires that the borrower have a minimum credit score of 620.  We recommend that you review your credit report and score six months to a year before you start the mortgage process to avoid negative surprises and address potential issues you identify with your credit profile.

Additionally, for borrowers with limited or no credit history, a lender may submit a nontraditional credit profile on behalf of the borrower.  Instead of, or in addition to, using a traditional credit report and score, the lender establishes a nontraditional credit profile using the borrower's payment history for housing (rent payments), utilities and one other credit source.  Borrowers that use a nontraditional credit profile to apply for the MyCommunityMortgage Program must have no housing / rental payment delinquencies within the past two years, no outstanding judgments and limited monthly debt among other requirements.

Depending on the number of units in the property you purchase, the MyCommunityMortgage Program may also require that borrowers keep a certain level of savings in reserve at the time the mortgage closes.  If you are buying a single unit residence you are not required to maintain savings in reserve (although FREEandCLEAR recommends that you keep three-to-six months of total monthly housing expense as savings in reserve).  If you are buying a two-to-four unit property, you are required to keep at least at least two months worth of mortgage payments as savings in reserve. So if your monthly mortgage payment is $2,000, you would be required to keep at least $4,000 in reserve at the time the mortgage closes.

Our free personalized mortgage quote feature enables you to compare no obligation loan proposals from top-rated lenders. Our quote form is free and requires minimal personal information. Comparing mortgage quotes enables you to find the best loan terms.

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Sources

"Fannie Mae Announces Improved Affordable Lending Product."  News Release.  Fannie Mae, August 25 2015.  Web.

About the author
Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR.  Harry is a licensed mortgage professional (NMLS #236752). More about Harry

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