Fannie Mae recently announced an option for first time home buyers to qualify for a 3% down loan. In addition, borrowers with a 620 credit score may be able to get a Fannie Mae backed loan as well. Previously, borrowers had to have 5% down and at least a 660 credit score. This is great news for real estate investors because it allows more prospective buyers to able to qualify for loans and many of the houses that investors sell are ideal for first time home buyers.
The announcement has provided great relief to real estate flippers and rehabbers as well because FHA has confirmed that they will not be extending the postponement of their 90 day anti-flipping rule. FHA only requires 3.5% down and also has slightly relaxed underwriting guidelines making the FHA loan the mortgage most first time home buyers qualify for. But since many house flipping sellers own their property for less than 90 days, starting January 1, 2015, when FHA re-instates their 90 day anti-flipping rule, no longer can borrowers use an FHA loan to buy a house an investor is flipping in less than 90 days. However, Fannie Mae does not have a 90 day restriction so a first time home buyer looking to purchase a home from a house flipper can do so thanks to this 3% down loan option by Fannie Mae.
It’s very important to recognize that Fannie Mae doesn’t originate mortgages. Instead, they buy bundles of mortgages on the secondary market. Certainly lenders that originate mortgages they intend to sell on the secondary market to Fannie Mae must fall within Fannie Mae’s guidelines. But those lenders may also have their own individual underwriting guidelines so even if Fannie Mae would buy the loan, they doesn’t guarantee that the lender is going to originate it if the borrower has a 620 credit score and only 3% down. Therefore, as an real estate investor, always be on the lookout for those mortgage companies that can originate these types of higher risk loans.
By Fannie Mae dropping their standards from 5% to 3% down, it also signifies that lending guidelines are relaxing because the powers that be feel the real estate market is healthy, growing steadily and poised for stability.
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