First-time home buyers receive credit toward closing costs

Mortgage broker: Joseph L. Mollica

Property type: Single-family purchase in Fairfield County

Purchase price: $353,000 Loan amount: $342,410 Loan type: 3 percent down

Backstory: A couple came to Connecticut Financial Mortgage to apply for a mortgage to purchase their first home.

They were able to make a down payment of 3 percent and wanted to learn about different mortgage options.

After researching the property location and the borrowers’ income, Joseph Mollica determined they were eligible for a $1,500 credit toward their closing costs under the Fannie Mae Home Ready Program. The borrowers were extremely pleased to receive this unexpected benefit.

For many years the “go-to” option for borrowers looking for low down payment loans was the Federal Housing Administration. Now, both Fannie Mae and Freddie Mac have introduced 3 percent down programs. These options provide better loan pricing than conventional loans and do not carry the upfront and ongoing private mortgage insurance costs associated with an FHA loan.

While FHA will accommodate credit scores below 620, the Federal National Mortgage Association Home Ready Product does allow for non-occupant co-borrowers, up to 50 percent debt-toincome ratios and other benefits.

You also don’t have to be a first time home buyer to be eligible. Home Ready does, however, have income limits (unless the property falls into a designated low income neighborhood).

It also provides a Community Reinvestment Act (CRA) credit of up to $1,500 toward the borrowers closing costs if their income is less than or equal to 80 percent of the area median income determined by county and wtate.

CRA is a law intended to en- courage depository institutions to help meet the credit needs of the communities in which they operate, including low and moderate income neighborhoods.

Despite these and other mortgage programs designed to encourage homeownership and the recent announcement from the Federal Housing Finance Agency that the baseline conforming loan limit for one-unit properties in 2019 will increase to $484,350, the pace of housing market activity remains slightly lower than last year. This may be due to continued low levels of inventory in many regions and increased mortgage rates.

Other economic factors weighing heavily on borrowers’ minds include the recent volatility in the stock market, weakening economic growth and flattening of the yield curve, which some economists believe is pointing to a possible recession in late 2019 into 2020.

Additionally, while the Federal Reserve is expected to raise rates at their December meeting, Chairman Jerome Powell last month hinted at a slower pace of monetary tightening saying that the Fed funds rate is close to a “neutral” level. This is in contrast to prior statements in which he indicated a more aggressive stance toward raising rates. This change in sentiment from Powell was good news for mortgage rates giving borrowers an opportunity to lock in lower rates over the past few weeks.