Plans Surface For 3% Down-Payment Mortgages (Really!) – Smarter Finance Journal

Plans Surface For 3% Down-Payment Mortgages (Really!)


The two main powerhouses (pun intended) Fannie Mae and Freddie Mac made quite the splash on Monday, detailing plans to back mortgages with down payments as low as 3%, saying they made the move to spark interest in home ownership more appealing with new found safeguards to protect against abuses that led to the housing market crash.

These loans are only allowed for fixed rate mortgages on single-family homes that would be the borrower’s primary residence and would require full documentation of the ability to repay the mortgage, said officials from the two firms and their regulator, the Federal Housing Finance Agency.

“Our goal is to help additional qualified borrowers gain access to mortgages,” said Andrew Bon Salle, executive vice president for single family underwriting, pricing and capital markets at Fannie Mae.

“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,” he said.

Officials said the program was designed to help credit-worthy borrowers, particularly those with low or moderate incomes, who can demonstrate the ability to repay a mortgage but lack the money needed for at least a 5% down payment.

The two firms will offer somewhat different programs.

Freddie Mac’s program is called Home Possible Advantage. It’s open to those that meet the minimum requirements, but there is a stipulation and a seemingly wise educational counseling program for first time buyers to teach the ins and outs they deem worthy of home ownership. This program is available to all, but a requirement if first time buyers. It’s also noted that all participants will have to pay for private mortgage insurance.

“Home Possible Advantage gives qualified borrowers with limited down payment savings a responsible path to home ownership and lenders a new tool for reaching eligible working families ready to own a home of their own,” said Dave Lowman, Freddie Mac’s executive vice president of single-family business.

Fannie Mae’s program will be available to anyone who has not owned a primary residence for three years. Unlike Freddie Mac’s program, this one does not require you to get counseling and education, but private mortgage insurance will be a must.

Those that choose to borrow with Fannie Mae can refinance and take out up to $2,000 to cover closing costs but will not be allowed to remove equity from their home. It seems this low-down payment option could benefit first time home buyers in higher cost than normal areas such as Southern California, where generating just the down payment itself is the largest barrier to owning a house, especially for those with smaller incomes.

“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,” said Bon Salle.

So there you have it in a nutshell. The two programs that are getting put into place are a great ploy to spark some new found interest and glory into owning a home. It may shift some renters to look into owning, now more appealing than ever, and could instill more balance between the two markets, considering those that rent in America is at an all time high.

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