Middle-to-low income homebuyers who currently do not own a home are eligible to receive a significant price break on their loan under the newest program offered by Central Coast Lending, Fannie Mae’s MyCommunityMortgage (MCM) program.
The program functions by (1) putting a cap on the upward rate price adjustments that can be made for “riskier” loans (borrowers offering a low down payment and middling credit) and (2) reducing the mortgage insurance requirement. In this way, buyers can obtain a low mortgage rate without paying an arm and a leg.
The beneficial terms offered by the MCM program often allow qualifying buyers to obtain a lower monthly mortgage payment than they would under the standard Conventional or FHA programs.
Mortgage rates have a cost associated with them. The best-qualified buyers – ones with good credit standing and a 20%-plus down payment – are offered the best prices. Conversely, the “riskier” borrowers, with lower credit scores and lower down payments, may have to pay more to obtain their mortgage rate. This pricing process is called “loan level pricing adjustments” (LLPAs).
The FHA loan program, as an example, caters to the “riskier” borrowers, and offers flexibility on credit qualification and down payment requirements. To some extent, the standard conventional loan offers the same flexibility. But for both programs, “marginally qualified” buyers often must pay more to obtain lower interest rates, and are subject to higher mortgage insurance premiums.
Enter the MyCommunityMortgage program.
By capping fees and reducing mortgage insurance requirements, MCM is often the most affordable option. MCM is especially beneficial for buyers with mid-to-low level FICO scores (620 to 680) who plan on making a down payment of less than 20% of the total loan amount.
Take this example. Let’s start with a buyer who wants to make a 5% down payment on a $400,000 loan. This particular buyer has a 660 credit score. To set the “test” situation, we will use the rate cost closest to zero (or “par”) for each mortgage program, so that the buyer isn’t paying to obtain the loan.*
Loan Amount: $380,000
Rate: 4.625% (APR: 5.308%)
Mortgage Insurance: 1.150% monthly
1st Monthly Payment: 2,304.28
Loan Amount: $380,000
Rate: 3.750% (APR: 5.700)
Mortgage Insurance: 1.75% upfront, 1.30% monthly
1st Payment: 2,198.86
Loan Amount: $380,000
Rate: 4.375% (APR: 4.825%)
Mortgage Insurance: 0.74% monthly
1st Payment: 2,129.86
As you see, the MCM program reduces mortgage insurance requirements and the cost of the mortgage rate, and as a result, the buyer owes less per month! The MCM program looks particularly good next to the Conventional program, because it offers lower mortgage insurance, a lower rate, and a $128.79 lower mortgage payment.
Qualification for the MCM program is restricted by income. Qualified borrowers can have a household income of up to 140% of the area’s median. In San Luis Obispo County, the upper limit is $107,800.
At the time of purchase, the buyer cannot have any current ownership status in another home.
Down Payment: as low as 5%
Credit Score: low of 620
Gift Payment: entire down payment can be a gift; no minimum borrower contribution
Rate and Term: fixed (30-year) and adjustable (5-1 ARM)
Ceiling: $417,000
Occupancy and Build: primary residence
Mortgage Insurance: discounted (call us at 805.543.LOAN for more information)
Income Limits: 140% of area’s median household income
Delinquency: no 30-day late mortgage or rental payments within the last 12 months
Education: Must complete homebuyer education program
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