It is official!Both government-sponsored enterprises Fannie Mae and Freddie Mac announced their individual 97% loan-to-value products, in the government’s latest attempt to expand the credit eligibility for first-time homeowners.
Back in October, the Federal Housing Finance Agency announced a number of policy steps aimed at increasing mortgage credit availability
These new lending guidelines were released today by Fannie Mae and Freddie Mac and will enable creditworthy borrowers who can afford a mortgage, but lack the resources to pay a substantial down payment plus closing costs, to get a mortgage with only 3% down.
Fannie’s My Community Mortgage product with a 3% down payment will be available now through desktop under writing tool starting the weekend of December 13, 2014. Fannie defines a first-time buyer as someone who hasn’t had primary residence in the last three years.
Fannie Mae and Freddie Mac’ underwriting systems includes as well compensating factors to evaluate a borrower’s creditworthiness who can afford a house payment.
These products come at the right time as top housing economists predict 2015 to be a significant year for the housing market.
Saving for a down payment is an important step in becoming financially prepared for homeownership, and there are options and opportunities for financing a home purchase that will allow the borrower to come with little or No Down Payment. For most first-time home buyers, coming up with funds for a down payment is the biggest obstacle to homeownership.
In the mortgage industry, 20% down is considered the benchmark down payment for looking strong on paper as a home buyer. How strong you are on paper will determine how you could obtain a loan.
However, being this a general standard for financial strength does not mean a requirement to get a loan. Reality is that there are home loans that can be obtain with $0 Down Payment if you are eligible.
FHA loans will allow you to apply for as low as a 3.5% down payment up to the maximum conforming loan limit in the county in which the property is located. Most lenders can lend up to $417,000 under FHA guidelines.
Conventional 5% Down Payment is another option for first time homebuyers. This is an excellent alternative to the higher-priced FHA loan Mortgage Insurance that allows to get rid of PMI after accumulating 20% equity after a minimum of 24 months.
$0. Down payment: 2 options that are available if you are eligible: a. VA loans allow 100% financing all the way through the maximum conforming loan limit in the county in which the property is located. Veteran’s Affairs mortgage loans are available to veterans, current members of the military and their spouse. b. USDA Loans allow 100% financing through the Rural Development United States Department of Agriculture. Property must be located within an area designated to be eligible for 100% financing.
There are also 10% down payment and 15% down payment loans. All 3 of these types of loans involve PMI. As time goes on, the push will be for a minimum 20% down payment. Remember with 20% down, there is no PMI. Conventional wisdom says you should put down as much as you feel comfortable putting down to buy a home. Generally, more is better than less. But don’t wipe out your savings account to do it. You will still need to have funds set aside for a rainy day and for things to buy after buying a home.
Jumbo loans are loans that usually can go as high as $750,000 with as little as 10% down.
However keep in mind that if you’re putting less than 20% down payment on a home, your monthly property taxes and fire insurance terms are most likely to be built into your monthly mortgage payment, and you’ll maybe have to pay for private mortgage insurance, as well.
Ultimately, the minimum down payment required will depend on the type of loan that you choose. Each mortgage loan type carries its own guidelines, and today underwriters closely scrutinize a borrower’s ability to repay the loan before giving you a loan.
Federal Housing Finance Agency has been working towards a plan to open what many we see as underwriting standards that are too restrictive.
Mortgage giants Fannie Mae and Freddie Mac, their regulator and lenders are close to an agreement that could greatly expand mortgage credit while helping lenders protect themselves from charges of making bad loans, according to people familiar with the matter.
Homeownership Gets Better!
If the agreement is completed, lenders may be more willing to lend to borrowers with lower credit scores and smaller down payments.
Now that lenders are starting to remove some of the credit overlays, it is time to improve the growth of homeownership in the country
We expect FHFA to report the steps to further move and clarify lender liability and support the return of the 97% LTV product at the GSEs, Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac have recouped tens of billions of dollars in penalties from lenders in recent years over claims that the lenders made underwriting mistakes on loans they sold to the mortgage giants.
However, Lenders have blamed those penalties for tight credit conditions and for prompting them to make loans only to borrowers with near-pristine credit.
We hope these initiatives will have a meaningful impact on the mortgage market, and we can see positive changes in the direction of the mortgages industry after years of tightening credit issues.
Next Tuesday will see the existing home sales report for September, on Thursday the FHFA purchase-only house price index for August, and Friday the new home sales report.