Fannie and Freddie’s 3% Down Payment Targets First-Time Home Buyers
Real Estate Media Host, Frank Garay of National Real Estate Posts expands on the new programs at 3:19
While there are concerns of another mortgage crisis in the making and skeptical lenders questioning the likelihood of safe lending, Fannie Mae and Freddie Mac executives assure that the new 97% LTV program is safe-guarded enough.
Encouraging good credit borrowers with little money to make a mortgage purchase, Fannie and Freddie has launched new mortgage programs to help boost the real estate market sales through Conventional loans requiring as little as 3% down payment.
These programs are designed specifically for fixed-rate loans on single-family properties purchased for primary residence. Fannie Mae’s Executive Vice President, Andrew Bon Salle representing single-family underwriting, pricing, and capital markets makes an assuring statement,
“We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae and an affordable, responsible option for qualified borrowers.”
The new Conventional loan encourage for more first-time home buyers with decent credit and low-to-moderate income to consider a mortgage purchase. After going over recently collected data analysis provided by the National Association of Realtors (NAR), the number of first-time home buyers make up the smallest percentage among all other types of borrowers in 27 years. Prior to Fannie and Freddie’s unveiled agenda, highly qualified first-time home buyers had to reconsider their options due to expensive down payment requirements.
A recent survey conducted in August by the Federal Reserve discovered that the reason why renters put their homeownership dreams on hold is due to unaffordable down payments. While others may beg to differ, claiming the lack of wage growth.
The Federal Housing Finance Agency (FHFA), of which oversees Fannie and Freddie, has implemented strong underwriting standards to ensure safe lending with these new 3% down payment Conventional loans.
The new 3% down payment Conventional loan requires:
- Maximum Loan-to-Value (LTV) of 97 percent
- Borrowers must participate in a borrower education program
- Either the borrower or the co-borrower must be a first-time home buyer
- Borrower must pay for Private Mortgage Insurance (PMI)
Despite these unique requirements, borrowers would still have to meet the standard eligibility guidelines under a Conventional purchase loan, such as income documentation, employment verification and all the other fun stuff. The new program also known as Home Possible Advantage, will help additional borrowers with gaining access to mortgages. The 97 percent maximum LTV certainly removes the barrier that prevents so many creditworthy individuals from owning a home for so many years now.
The FHA home loan offers similar advantages with 3.5% down payment requirement from first-time home buyers with the purchase of a PMI. But the new Conventional home loan requires 0.5% less. Not only is the down payment requirement less than that of an FHA, Freddie Mac’s new conventional loan may still be more affordable with lower fees and perhaps even cheaper mortgage insurance. Borrowers with good to excellent credit scores are usually able to lock in some of the lowest rates available today, and this program gives them the greatest advantage yet.
With less money required for down payment on top of a low mortgage interest rate, the new 3% Conventional home loan may be hard to compete with for all other mortgage programs in today’s housing market.
Starting this Saturday, Dec. 13, 2014 Fannie Mae will make the 3% mortgage loan option under the already existing “My Community Mortgage Program” available to all borrowers who have not yet owned a primary residence for the past three years. Keeping in mind that Private Mortgage Insurance is required for this program as well. Fannie Mae’s borrowers under the new program would have the option to refinance their homes allowing them to take out up to $2,000 for closing costs. However, the program does not allow for them to take out equity on their home.
Freddie Mac has always backed borrowers with a 5 percent down payment since 2011. Freddie Mac on the other hand will not be launching its new 3% loan option under the Home Possible Advantage Program until March 2015. Under the Home Possible Advantage program, all first-time home buyers must meet all credit requirements along with participation in a homeownership education program. Different from Fannie Mae’s new loan program, borrowers would be able to refinance, but are not allowed to take nay cash out for help in covering closing costs.
Despite the 2008 issue with claims of bad mortgages backed by Fannie and Freddie, and a $187.5 billion bailout to help the firms, the housing market is now back on track and the firms are doing better than ever. The new mortgage loan programs should be make it more profitable for Fannie and Freddie.
Just this year, Fannie and Freddie finished paying back the government for their bailout.
The new 3% down-payment program mitigates risk with strong underwriting. The new program ensures that responsible home buyers will have access to safe, affordable mortgage credit.
Jessica Lucas
