Both Fannie Mae and Freddie Mac, the two mortgage financing giants which own a majority of U.S. mortgages, are promoting 3 percent down-payment home loans for low- and moderate-income borrowers.
The newly-expanded programs are aimed at bringing back first-time home buyers to the housing market who have been unable to qualify for tighter lending standards or cannot obtain the necessary 20 percent cash down-payment.
But the programs are not just for first-time homebuyers, as media reports have suggested.
There are plenty of details to sort out if you are a potential 3 percent-down-payment borrower.
Here are some important facts to know.
To qualify for Fannie’s and Freddie’s mortgage programs with just 3 percent down, borrowers must have a credit score of at least 620. They must also be able to able to prove income, assets and job status, and purchase private mortgage insurance.
Homebuyers can purchase a home under Fannie Mae’s standard offering, or its MyCommunityMortgage product, with a three percent down-payment if at least one co-borrower is a first-time buyer.
Freddie Mac’s Home Possible Advantage offers qualified low- and moderate-income borrowers a conforming conventional mortgage with a maximum loan-to-value ratio of 97 percent.
Here’s what Fannie Mae says: “To qualify for a mortgage, you’ll need to meet the lender’s credit qualifications (which may vary by lender but you typically need a minimum credit score of 620). If you’re not in that range, you may need to spend time rebuilding your credit or come up with a larger down payment (i.e., 10% vs. 3%).”
Here’s what Freddie Mac says: “A credit score of 660 is required for Home Possible Advantage mortgages (680 for refinances) that are underwritten manually by a lender. However, we expect the majority of these loans to be underwritten using our automated underwriting system Loan Prospector – which assesses a prospective loan’s eligibility for sale to us based on our credit guidelines.”
These 3 percent down-payment programs are available to all eligible low- and moderate-income borrowers – including first-time homebuyers.
Freddie Mac: “To qualify for Home Possible Advantage, first-time homebuyers (borrowers who’ve had no ownership in a residential property during the last three years) are required to participate in an acceptable borrower education program, like Freddie Mac’s CreditSmart.”
Fannie Mae: “To be eligible for this 3% down payment option, at least one buyer must be a first-time homebuyer (in this case, “first-time homebuyer” means that at least one buyer hasn’t owned any residential property in the past three years). Homebuyers can finance their home purchase under Fannie Mae’s standard conventional mortgage or its MyCommunityMortgage product, which offers enhanced eligibility terms and includes homebuyer education.
Types of Loans Available
These loans will require private mortgage insurance, as is the case with purchase loans acquired by both Fannie Mae and Freddie Mac with greater than 80 percent loan-to-value.
Freddie Mac: “Home Possible Advantage mortgages are available as 15-, 20-, and 30-year fixed rate mortgages. For more information, visit freddiemac.com/singlefamily/homepossible. Lenders should contact their Freddie Mac representative and interested borrowers should contact a Freddie Mac lender.”
Fannie Mae: ‘Keep in mind, when you’re buying a home, you’ll have upfront costs—down payment, closing costs—and you’ll need to be prepared for these expenses. We’ll go through more details in the Qualify for a Mortgage section and you can use our Mortgage Calculator to help estimate what you can afford.”