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Changes for the better have arrived for Fannie Mae’s high balance loan offerings. This is good news, because it makes mortgage financing more available to more home buyers. These changes should be of particular interest to those who have a decent salary but might not have accumulated enough liquid home buying assets.

The first significant change is that minimum down payments are 5% instead of 10% on fixed-rate mortgages. And second, if a borrower’s down payment is less than 20%, it’s no longer required of them to have 5% of their own money in the transaction on a high balance loan for a single-family primary residence.

There are further changes if you’re buying a property with multiple units for the purposes of renting them out. We’ll get into all that below.

Loan Limits

To help put these changes into more perspective, think of mortgage loan limits in three tiers: conforming, high balance and jumbo. The difference between them is their loan limits.

Conforming loans follow Fannie Mae and Freddie Mac guidelines and are limited to $417,000 for a single-family home. The loan can be equal to or less than that amount.

High-balance loans are between $417,000 and $625,500. The amount will be determined based on where the property is.

Jumbo loans (also called non-conforming) do not follow the guidelines of Fannie Mae and Freddie Mac, which can make them more costly as the features and standards of the loan vary. The loan amounts range between $417,000 and $3 million.

The exact loan limits depend on where you live and, if you’re interested in rental income, the number of units you’re trying to obtain. Take a look at this Fannie Mae breakdown for 2016 limits, which also includes a loan limit look-up table as one of their resources (see left menu bar). In addition, the Federal Housing Finance Agency provides several lists of conforming loan limits for calendar year 2016, including one in all counties.

Down Payments and Equity Requirements

One of the primary concerns when looking at buying a house is whether you can afford the down payment. If you’re doing a refinance, make sure you have enough equity to qualify.

Your down payment or amount of equity is calculated based on your loan-to-value (LTV) ratio. Your LTV compares your down payment or equity stake with the amount being financed.

For example, if you put down a $20,000 payment toward a $100,000 loan, you would have 80% LTV because 80% of the transaction is being financed by the lender.

Fannie Mae has recently made some changes on high balance loans to the amount of money you need to purchase a high-balance property. The amount of equity needed to do a “refi” is also lower.

There are a lot of changes, so we tried to summarize them below. First, let’s look at the changes to fixed-rate loans.

Fixed LTV

Here are the changes for adjustable rate mortgages (ARMs).

ARM LTV

One other significant change to highlight is the fact that you can now do a cash-out refinance on second homes and multi-unit properties with a high balance loan. In some instances, it does require a significant amount of equity.

Other Changes

In addition to lowering down payment requirements, Fannie Mae has done a couple of other things around down payments and equity that you should know about.

Multiple-financed properties

There are also no additional down payment or equity changes if you have high balance loans on 5–10 financed loans.

If you’re looking to do a purchase or rate-term refinance with this number of properties, the down payment for a second home or one-unit investment property is 25% for a fixed-rate mortgage and 35% for an ARM.

A purchase or rate-term refinance on an investment property of multiple units requires a 30% down payment on a fixed-rate mortgage. ARMs require a 40% down payment.

Cash-out refinances with this number of properties are not allowed.

Minimum client contribution

When you buy a house, the client often has to contribute a certain amount of their own funds to the down payment. On a primary residence loan that’s one unit, a client doesn’t have to contribute anything and the entire down payment can come from other sources.

If a client is making a down payment of less than 20%, 5% of that down payment must come from the client on a multi-unit property. The same requirement applies to second homes.

If you’re buying an investment property, the entire down payment has to come from the client.

That’s a lot of information, but we’ve tried to break it all down for you in an understandable format. If you have any questions, let us know in the comments.

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