Its A Good Time To Buy Real Estate With 97 Percent Ltv

It is not always easy to find the deposit required to facilitate the purchase of real estate. However, things have changed for better. It is now easier with an increased loan-to-value (LTV) ratio that allows financiers to reduce the amount the borrower needs to contribute towards the purchase of a home.1 This change has made it easier for individuals who have never purchased a home or at least within the last three years. The requirements are not very stringent and will facilitate increased home ownership for those with moderate income.  

Increase in Loan-To-Value Ratio

Since 12/08/2014 purchasers only need to find 3% of the value of the property of interest. The LTV ratio has increased to 97%. Financiers will now lend 97% of the value of the property. This increase makes it easier for an individual or a couple to invest in real estate for investment income or for dwelling.2 This is especially good for first time home owners who earn low to moderate income and can least afford the funds for a substantial down payment. However, there are some requirements that have to be satisfied by the borrower before this is possible.

Requirements of Borrowers

Borrowers have to meet the regular eligibility requirements in order to qualify. These requirements relate to income, underwriting and risk management standards. Therefore, borrowers need to obtain private mortgage insurance (PMI) or use any other approved methods to share the risk. This 97% LTV option only applies to first time home buyers who must be credit worthy in order to access these loans.3 Two persons can join together in order to facilitate the purchase but one of them has to be a first time buyer. In fact, at least one of them should not have purchased a home within the last three years. The requirements for ability to pay and income are in accordance with new US mortgage rules.4

What Can the Loan Be Used For?

The 97% LTV program does not facilitate the purchase of just about any home the borrower wants.5 There are restrictions on the type of dwelling that qualifies. In order to benefit from a 3% down payment the borrower has to purchase a single family home, condo, co-op or PUD. This property should also be the primary residence for the homebuyer. Ownership of a home within the last three years by any of the parties would disqualify potential borrowers.  

Additional Guidelines for Qualifying

There are other additional guidelines including the amount that can be borrowed under this facility and the type of loan. The maximum loan allowed is $417,000. The mortgage has to be based on a fixed rate. Therefore, the interest rate will be set as opposed to an adjustable rate mortgage (ARM) which can go up or down. The difference between a fixed rate and an ARM is that the borrower knows what the interest rate will be while the ARM can change at any time.6

Effective Date for 97 percent LTV

The 97 per cent LTV is available from 13th December 2014. Fannie Mae and Freddie Mac are the fore-runners in providing this opportunity. This is not the first time they have ventured down this road. They previously had a similar facility which was discontinued in 2013.

How Will It Impact Home Ownership?

This new 97 percent mortgage offer will expand access to home ownership.7 This is especially important for first time homebuyers and real estate dealers. It is a great opportunity for potential first time home owners contemplating buying their own home. It will also stimulate the market for mortgages and the construction industry. However, although the mortgage outlook may be positive, industry professionals are cautious.8

Tips for Purchasing Real Estate

Buying a home is a major investment and adequate preparation is critical. A mortgage calculator should be used to determine the monthly payments. This will assist mortgagees in deciding what value real estate to consider. A few tips for homebuyers will help to ensure a successful purchase.9 Research the area where the home will be purchased for the crime rate. Visit the community at several different times of day and on different days of the week to determine the noise level.

1. Finance Formulas (n.d.). Loan to Value Ratio. Available from http://www.financeformulas.net/Loan_to_Value_Ratio.html Accessed 24th December 2014

2. Armstrong Real Estate Services. Welcome To Armstrong Real Estate Services, Your Denver Real Estate Experts. http://www.armstrongre.com/ Accessed 24^th December 2014

3. Dosberg, Callie (2014). Fannie Mae Announces 97 Percent LTV Option for First-Time Homebuyers. Available from http://fanniemae.com/portal/about-us/media/corporate-news/2014/6203.html Accessed 24th December 2014

4. Consumer Financial Protection Bureau. (n.d.). Ability to Repay and Qualified Mortgage Standards Under the Truth in Lending Act (Regulation Z). Available from http://www.consumerfinance.gov/regulations/ability-to-repay-and-qualified-mortgage-standards-under-the-truth-in-lending-act-regulation-z/ Accessed 24^th December 2014

5. Lucas, T. (2014). Conventional 97% LTV Program: Buy a Home with 3% Down. Available from http://mymortgageinsider.com/conventional-97-ltv-program/ Accessed on 24^th December 2014

6. Consumer Financial Protection Bureau (2014). What is the difference between a fixed-rate and adjustable-rate mortgage (ARM) loan? Available from http://www.consumerfinance.gov/askcfpb/100/what-is-the-difference-between-a-fixed-rate-and-adjustable-rate-mortgage-arm-loan.html Accessed 24th December 2014

7. Freddie Mac. (2014). Guide Bulletin 2014-22 Introduces New 97 LTV Mortgage Offering. Available from http://www.freddiemac.com/singlefamily/news/2014/1208_bll1422_intro.html?attr=rssSFNews Accessed 24th December 2014

8. The Collingswood Group. (2014). Mortgage Industry Outlook Report. Available from http://cdn2.hubspot.net/hub/442088/file-2173380374-pdf/The_Collingwood_Groups_Mortgage_Industry_Outlook_November_2014.pdf?t=1419283807188 Accessed on 24^th December 2014

9. Mortgage Calculator. (2014). Mortgage Payment Calculator with Amortization. Available from http://www.mortgagecalculator.biz/  Accessed 24th December 2014.