Fannie Mae and Freddie Mac announced Monday that first-time home buyers can now qualify for loans with down payments as low as 3 percent. Housing analysts expect say this will expand credit for qualified home buyers who may have been sidelined the last few years because of higher down-payment requirements.
“Our goal is to help additional qualified borrowers gain access to mortgages,” says 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. Our new 97 percent LTV offering is simply one way we are working to remove barriers for creditworthy borrowers to get a mortgage.”
With Fannie Mae’s 3 percent down-payment option, borrowers will still need to meet standard eligibility requirements. Any buyer can take advantage of Fannie’s loans as long as at least one co-borrower is a first-time buyer. The loans will also require private mortgage insurance.
Kevin Kelly, chairman of the National Association of Home Builders (NAHB), issued the following statement regarding announcements by Fannie Mae and Freddie Mac of programs.
“NAHB commends Fannie Mae and Freddie Mac for instituting new loan guidelines that will allow creditworthy borrowers to obtain mortgages with a downpayment of 3 percent. One of the biggest obstacles to achieving homeownership is the ability to come up with a downpayment. By reducing upfront cash requirements while establishing tough but fair underwriting guidelines that include a number of safeguards, Fannie and Freddie will open the door to homeownership for more American families, particularly first-time home buyers and younger households.”
The 3% loans from Fannie and Freddie should also offer some advantages over the 3.5% down loans offered by FHA, according to some experts. For example, the FHA loans require borrowers to pay for private mortgage insurance premiums for the entire term of the mortgage — typically 30 years. Under Fannie and Freddie’s programs, borrowers are permitted to cancel their private mortgage insurance premiums once the mortgage balance drops below 80% of the home’s value