In the midst of a very competitive home selling season, borrowers are doing more upfront research to find the best discounts offered by lenders. These savvy shoppers speak to a variety of real estate agents and friends living in their target area, all on the hunt for a hidden opportunity. At STEM Lending, we make sure you (home-shopper) are also seeing all of the discounts available to you for your mortgage, based on your financial profile and needs.
Our core customer is a first-time homebuyer who’s just begun to wade into the deep waters of securing their mortgage. Many of these borrowers might be eligible for loan programs like Fannie Mae’s HomeReady, or Freddie Mac’s HomePossible, but won’t be able to take advantage if they aren’t educated to know what to look for.
We help make the largest financial decision in your life cheaper, faster, and transparent by showing you fully-baked mortgage rates, fees, & closing costs across lenders.
How Am I Missing Out on Mortgage Discounts?
Typically, direct lenders have the opportunity to reflect rate changes to consumers several times a day based on changes in the yield curve (US Treasury yield). The spread between where a mortgage can be originated to a customer like me or you vs. where the same loan sells in the capital markets is known as the “primary-secondary spread.” In the primary mortgage market, lenders make loans to borrowers at a specific mortgage interest rate, then these same lenders sell your mortgage loan in the secondary market.
Where mortgage lenders originate mortgages in the primary market should, in theory, change in real-time as the US Treasury market moves constantly while markets are open — but they don’t. Try refreshing your computer screen throughout the day; do you see the mortgage rates moving in tandem with other interest rate markets? Not likely. However, do you see Treasury markets and interest-rate markets like LIBOR moving? Yes. This spread is part of what is being locked in when you “lock” your mortgage rate.
Sure, there are business operating expenses that the mortgage lender has to cover, guarantee fees to pay, and pipeline risks to hedge (what % of ‘locked’ loans actually close can vary)…but do all of those fees & risks = the mortgage rate you’re seeing? Not likely.
These lenders can sell the entire originated mortgage “whole-loan” to another bank, or it can “securitize” a pool of these whole-loans into mortgage backed securities (MBS) and sell them as a package of securities (bonds) to investors, who buy these pools, thereby giving the mortgage lender more cash to originate more loans. If you want to dig into more of the details regarding mortgage origination, start here.
In summary, there are a variety of ways that lenders make money, whether through capturing profit margin spreads between the primary & secondary markets, or in how & when they sell your mortgage loan to someone else.
As your mortgage broker with deep knowledge of the market, we sift through the minutiae to find the best loan discounts for you, saving you $30,000+ over the life of your loan, and delivering a far better customer experience along the way.
What Kind of Loan Discounts Am I Eligible For?
Every lender has literally dozens of different loan options available to you, across different durations (30yr, 20yr, 15yr, 10yr). There are fixed-rate mortgage options & adjustable-rate mortgages (ARMs) that you can compare, but depending on your financial profile, there may be reasons why you should consider 1 or 2 loan options above the rest. Depending on the lender’s customer focus, there may be daily or weekly pricing adjustments that we can spot for you & pass on those savings.
Earlier, we also mentioned the Fannie Mae HomeReady program, and corresponding HomePossible loan program by Freddie Mac. We’ll go into a these and a few other specific programs we feel you should be aware of.
All of the below loan programs offer discounts that show up as credits to you (the borrower). These discounts allow you to qualify for more competitive mortgage rates, and lower down-payments, which = savings that you care about. Ultimately, these discounts could mean that the total $$ amount you have to have in order to close on your home is lower.
Fannie Mae “HomeReady” Mortgage
This mortgage loan program is a relatively new low down-payment option for first-time home buyers, offered through Fannie Mae. If you have non-traditional credit or just fall into the historical underwriting guidelines, HomeReady makes it easier for you to get a home. If you have a low down payment, need to use income from a household member who’s not on the loan, or if you want to use income from an Airbnb rental that you’ve got setup in the home you’re buying, HomeReady could be the right loan option for you.
Minimum down payment: 3% down for a 1-unit property. 15% for a 2-unit property, and 25% for a 3-4 unit property.
Primary Residence? Yes, HomeReady is only for those who intend to make this purchase their primary residence. You cannot use it to buy a second home or a rental property.
How does HomeReady compare vs. FHA? Great question. If you put less than 20% down in the form of a down-payment, you will have mortgage insurance (aka “MI”). However, the mortgage insurance fees are slightly lower than MI on other, similar Fannie Mae loans, and significantly lower than mortgage insurance on FHA loans.
Minimum credit score? HomeReady minimum credit score is 620, whereas FHA you can have as low as 580 for a 3.5% down payment, or 500 for a 10% down payment. So there are trade-offs to going with HomeReady vs. FHA, depending on your current credit profile.
Freddie Mac “HomePossible” Mortgage
Freddie Mac’s Home Possible & Home Possible Advantage mortgage programs are focused on first-time homebuyers, have low 3-5% down-payment requirements, but are designed for low-to-moderate income buyers. As a result, to be eligible for either mortgage program, your income cannot exceed the Area Median Income (AMI) where the property is located.
You can apply for both programs whether you’re looking to purchase or refinance your home, but in no cash-out refinances are allowed. The rationale here is that Refinances through this program should only be used to lower the interest rate or the term of the mortgage. Ex. refinancing from a 4.5% 30yr mortgage into a 4.125% 15yr mortgage.
Minimum FICO score: Minimum credit score for these programs will vary, but expect to have at least a credit score of 620.
Freddie Mac “HomeOne” Mortgage
The HomeOne mortgage is available only as a fixed-rate mortgage that meets conforming loan limits (under $453,100 loan amount). The mortgage must be secured by a 1-unit primary residence as well.
minimum down-payment: Minimum down payment requirement of 3 percent. This will be available starting on July 29.
Only first-time home buyers will be eligible for the HomeOne loan program. If you’re wondering whether you meet the definition of a first-time homebuyer, currently a first-time homebuyer is defined as someone who hasn’t owned a home in the past three years.
For more information on Freddie’s HomeOne loan program, give us a call and we’ll walk you through it.
State Specific Mortgage Programs
In addition to these national loan programs designed to help first-time homebuyers, check your local state housing agency to see if there are any mortgage discounts or special programs that can help you even further.
STEM Lending operates (currently) in Pennsylvania, Virginia and Colorado; here are a few examples of state level programs that can help you save time and money on your mortgage:
Pennsylvania Mortgage Discounts
As a mortgage broker based in Philadelphia — we are keenly focused on helping our borrowers in Pennsylvania secure their mortgage.
The Pennsylvania Housing Finance Agency (PHFA) is a non-profit organization which serves the people of Pennsylvania by offering affordable housing resources, including loans and rent assistance. The PHFA also provides mortgage loan programs, and we can help you navigate the ins & outs of these programs.
A lesser known fact however, is that veterans or buyers in certain target counties of Pennsylvania don’t have to meet first-time home buyer restrictions to benefit from PHFA’s loan programs.
Am I Eligible for PHFA Discounts?
- Borrowers’ liquid assets, including investments, cannot be higher than $50,000 after paying closing costs
- Household income and purchase price cannot exceed county limits
- Must make the home your primary residence (no investor properties)
- Minimum credit score of 660 for most of PHFA loan programs
- Borrowers with credit scores lower than 680 will have to complete home buyer education