FAQs: 97% LTV Options

Borrower equity and LTV ratio are both important factors when determining the borrower’s ability to repay the mortgage in support of sustainable homeownership. Our analysis indicates that there is minimal difference in default risk for loans with LTV ratios greater than 90% up to 95% compared to those with LTV ratios greater than 95% up to 97%.

All loans with LTV ratios greater than 95% up to 97% are required to be underwritten through DU, our proven risk management tool. DU conducts a comprehensive risk assessment of all aspects of the transaction, including the LTV, to provide an underwriting recommendation. Loans with certain risk factors, such as a high LTV, must demonstrate other compensating factors to achieve an Approve recommendation. The use of DU allows Fannie Mae to provide the broadest eligibility to creditworthy borrowers while continuing to support sustainable homeownership.

NOTE : Fannie Mae previously stopped purchasing loans with other risk factors that could impact sustainability, including low-documentation loans, interest-only loans, 40-year terms, and credit scores lower than 620.

The property must be a one-unit principal residence, including condos, co-ops, planned unit developments (PUDs) and MH Advantage homes (Standard Manufactured Housing: max. 95% LTV/CLTV).

The maximum LTV of 97% is offered only for fixed-rate mortgages with a term up to 30 years; adjustable-rate mortgages and high-balance loans are not eligible for 97% financing and remain subject to the maximum LTV requirements per the Eligibility Matrix.

Lenders must continue to deliver all applicable SFCs, including, but not limited to:

• SFC 127, Desktop Underwriter® (DU® ) Loan (required for all 97% LTV loans) 
• SFC 900 for HomeReady transactions 
• SFC 859 for MH Advantage transactions

Other SFCs may apply. View the SFC list.

Our HomeReady mortgage does not require that borrowers be first-time home buyers. Fannie Mae standard transactions using 97% LTV financing, however, must have at least one borrower who is a first-time home buyer.

Yes, several differences for purchase transactions are summarized below.

NOTE: This table summarizes the differences between the HomeReady and Fannie Mae standard 97% LTV options for purchase transactions. All HomeReady and Fannie Mae standard requirements apply per the Selling Guide.

Definitions: AMI: area median income; first-time home buyer: At least one buyer must not have owned any residential property in the past three years (see the Selling Guide Glossary for the full definition); homeownership education and housing counseling: See Selling Guide section B2-2-06; LLPA: loan-level price adjustment; MI: mortgage insurance.

* A qualified provider must be independent of the lender, with homeownership education content that is aligned with National Industry Standards (NIS) or is offered by a housing counseling agency approved by the U.S. Department of Housing and Urban Development (HUD).

**Loan Level Price Adjustments (LLPAs) are waived for first-time homebuyers that meet certain income requirements and Duty to Serve loans. See the LLPA Matrix and Duty to Serve eligibility requirements for details.

Fannie Mae believes that access to quality homeownership education and counseling can provide borrowers with the important information and resources to make informed decisions that support long-term homeownership sustainability.

 - For HomeReady purchase transactions, if ALL occupying borrowers are first-time homebuyers, then at least one borrower is required to take homeownership education from a qualified provider*, regardless of LTV. 

- For other purchase transactions where LTV, CLTV, or HCLTV > 95%, if ALL occupying borrowers are first-time homebuyers, then at least one borrower is required to take homeownership education from a qualified provider*, regardless of the product chosen.

HomeView®, which provides a clear view into the homeownership process, can be used to satisfy the homeownership education requirement.

* A qualified provider must be independent of the lender, with homeownership education content that is aligned with National Industry Standards (NIS) or is offered by a housing counseling agency approved by the U.S. Department of Housing and Urban Development (HUD).

Exceptions to the homeownership education course requirement:

• For loans that involve a Community Seconds® or down payment assistance program, buyers may instead complete the homeownership education course or counseling required by the Community Seconds or down payment assistance program as long as it is provided by a HUD-approved agency and completed prior to closing.
• The presence of a disability, lack of Internet access, or other situations may indicate that a consumer is better served through other education modes (for example, in-person classroom education or via a telephone conference call). In such cases, lenders should direct buyers to HOPE® Hotline 1-888-995-HOPE (4673), to speak with a HUD-certified counselor.

• Finally, buyers who have already completed housing counseling by a HUD-approved agency (as evidenced by a completed Form 1017 or course completion certificate) are not required to complete the homeownership education course.

Gifts, grants, and Community Seconds® can be used as a source of funds for down payment and closing costs, with no minimum contribution required from the borrower’s own funds (1-unit properties). Any eligible loan may have more than one Community Seconds (i.e., third lien) up to the maximum 105 percent CLTV (see Community Seconds fact sheet). Cash-on-hand is also an eligible source of funds for a HomeReady transaction.

The lender is responsible for verifying that the existing mortgage is currently owned or securitized by Fannie Mae. Documentation may come from:

• The lender’s servicing system (if the lender is the servicer of the existing mortgage); or
• The current servicer (if the lender is not the servicer); or
• A printout from Fannie Mae’s Loan Lookup tool, if a match is identified; or
• Any other source as confirmed by the lender.

Documentation should provide some validation that the loan is currently owned or securitized by Fannie Mae, such as the Fannie Mae loan number for the existing mortgage loan.

Lenders must inform DU that Fannie Mae owns the existing mortgage by indicating Fannie Mae in the “Owner of Existing Mortgage” field in the online loan application. In the Desktop Originator® (DO®)/DU User Interface), this field is located on the Additional Data screen in the Full 1003. Because this indication will be used by DU to determine eligibility of the loan for delivery to Fannie Mae when the LTV, CLTV, or HCLTV ratios exceed 95%, the lender will be required to document that the loan being refinanced is currently owned by Fannie Mae.

Yes. LCOR eligibility up to 97% is available under both our standard and HomeReady guidelines.