Good News for Homebuyers! Fannie Mae Now Allowing Lenders to Contribute to Closing Costs


Fannie Mae has announced that, effective immediately, it is allowing lenders to assist homebuyers with their closing costs for home purchases on GSE-backed loans. This differs from Fannie’s most recent program, ended last summer, in which lenders were allowed to actually help homebuyers by providing a portion of their down payments.

How Did the Previous Program Work?

Last summer, Fannie Mae put a halt to down payment assistance programs where lenders were providing borrowers with less favorable loan terms, such as higher interest rates, in exchange for the upfront down payment assistance. It was suspected that in some cases the costs of the loan terms in the long run far outweighed the financial benefits that home borrowers received up front.

Under such programs, some lenders gave borrowers up to 2% of the home costs, leaving the borrower with the responsibility for contributing the remaining 1%, for the total 3% down payment required to qualify for a Fannie Mae or Freddie Mac loan program. However, in exchange for the assistance, they received less favorable loan terms, which allowed lenders to not only recoup the money they provided the borrowers up front, but in many cases, to make additional profit.

According to a release from HousingWire, this raised some eyebrows at the Federal Housing Finance Agency (FHFA) and prompted Fannie Mae to suspend the down payment assistance programs, except in some cases where the assistance was a true gift and didn’t affect loan terms.

How Does the New Program Work?

Fannie Mae issued a bulletin to lenders this week informing them about its new rules. It said that lenders can begin assisting borrowers with closing costs right away, but the amount of lender contributions cannot exceed the amount of the closing costs and pre-paid fees actually paid by the borrower.

According to Fannie Mae, this program was already available on a limited trial basis to some lenders, but is now available to all lenders issuing GSE-backed loans.

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