On Monday December 8th 2014, Fannie Mae and Freddie Mac, the nations leading mortgage buyers, issued statements that announced they will allow loans for primary residences as low as 3% down. This move was done in an effort to loosen credit and get more people into homes, though certain criteria and rules are in place to prevent another 2007.
But will it be enough?
Related: Should We Act on What We Hear in The News About Real Estate?
Fannie and Freddie 3% Details
The new 97% LTV loans will allow homeowners to purchase properties for just 3% down, a reduction from their previous requirements of 5%. Although this is only a small drop, it is the hope of these government-sponsored enterprises that by decreasing the loan amount required, more individuals will be able to purchase a home.
According to CNN, previous requirements, such as a minimum credit score of 620 and verification of stable job income, still apply to the new loan programs.
The new guidelines differ slightly between the two giants, but both allow for just 3% of the purchase price to be supplied.
Under Fannie Mae’s new guidelines, the property being purchased must be a single unit, owner-occupied property (sorry House Hackers looking for a duplex, triplex, or quad). Additionally, Fannie Mae requires that “At least one borrower must complete an acceptable prepurchase home-buyer education and counseling program” in order to qualify for this low-down mortgage. Finally, Fannie Mae requires that at least one of the applicants must be a first-time home buyer (not applicable for the refinance).
Freddie Mac’s program, called “Home Possible Advantage,” is similar to the Fannie Mae program in all these regards, though Freddie Mac only requires the education program for first-time home buyers but will lend to previous homeowners, unlike Fannie Mae.
In an official statement from Freddie Mac, Dave Lowman, Executive Vice President, Single-Family Business at Freddie Mac said, “Home Possible Advantage gives qualified borrowers with limited downpayment savings a responsible path to homeownership and lenders a new tool for reaching eligible working families ready to own a home of their own. Home Possible Advantage is Freddie Mac’s newest effort to foster a strong and stable mortgage market.”
Related: The Investor’s Complete Guide to Filling Out a Successful Loan Application
Both programs WILL require private mortgage insurance, but unlike the typical FHA loan, the borrower will be able to easily drop the insurance without needing to refinance. As soon as the borrow can prove the value of the property has risen below 80% LTV, the PMI can stop.
Both programs also make the new limits applicable for refinances, though not cash-out refinances. In other words, you can refinance your primary residence up to 97% of the value, but only if you are paying off existing liens.
What This Means for YOU
So what do you think? Will this continue to prop up the current real estate market? Will this ultimately help things or hurt things?
How will this affect your business?
I’ve love to hear your thoughts below in the comments!
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