Today, Fannie Mae and Freddie Mac announced they would sign off on loans with down payments under 5.0 percent, offering a new program allowing eligible borrowers to put only 3.0 percent down, a move foreshadowed by the Federal Housing Finance Agency which indicated this fall that lower down payments would soon be possible.
Although there has been a reduced down payment requirement, qualification for these loans are limited to first-time buyers that meet the minimum income requirements, and they may be required to attend homebuyer counseling to be eligible. Fannie says its delinquency rate for single-family home loans has dipped below 2.0 percent, making the conditions better than just two to three years ago.
Minimum scores, debt-to-income-ratios, and more
For Fannie Mae loans, the minimum credit score will be 620, but lenders will continue to consider debt-to-income ratios, which will restrict some buyers from qualifying, while letting some newer buyers back into the market.
Freddie Mac’s revised guidelines will not go into effect until March 2015 and will determine eligibility based on the median income in a borrow’s geographical area, so if they earn lower than the median income, they’ll likely get the lower down payment option.
As with any mortgage with less than 20 percent being put down, mortgage insurance will still be required. Both agencies believe these 3.0 percent loans won’t become the norm since there are still hoops to jump through, and it is a far cry from the no-doc loans of yesteryear, they say the goal is to open up homeownership to people who are qualified to make the payments but don’t have the savings on hand to commit 5.0 percent down.
The key word is “responsible”
“Our goal is to help additional qualified borrowers gain access to mortgages,” said Andrew Bon Salle, Fannie Mae Executive Vice President for Single Family Underwriting, Pricing and Capital Markets. “This option alone will not solve all the challenges around access to credit.”
Bon Salle added, “Our new 97 percent LTV offering is simply one way we are working to remove barriers for creditworthy borrowers to get a mortgage. 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 key word there is “responsible,” which has been echoed in the halls of Congress, economists’ offices, and journalists’ desks alike, and one we’ll continue seeing as lending continues to slowly become less stifling.