Just over a year ago, Fannie Mae (FNMA) discontinued its loan program allowing borrowers to purchase a home with just 3% down, thereafter requiring a minimum of 5% down to qualify for conventional financing.
Effective December 13, 2014, FNMA will once again offer 97% conventional financing, as long as at least one of the borrowers on the loan is a “first-time homebuyer”. A first-time homebuyer will be defined to include borrowers who have not owned a home within the last 3 years.
According to FNMA executives, their goal is to help additional qualified borrowers gain access to mortgages. The program will be available for owner-occupied primary residences and can be used either to purchase or refinance a property. Requirements for underwriting and documentation will follow the same guidelines as existing Fannie Mae loan programs. Consistent with other loans with a loan-to-value ratio greater than 80%, these loans will also require mortgage insurance.
Other low down payment options available to borrowers are FHA, VA and USDA financing. Each of these options has advantages and disadvantages and should be evaluated in light of the borrower’s particular circumstances.
While FHA financing can be a good option for borrowers looking for a low down payment loan, there are circumstances in which the borrower may be better off with a conventional loan, especially now that the 3% down payment option is back. In general, mortgage insurance premiums are lower under FNMA conventional financing. And they can be eliminated once the loan has been paid down to 78% of the original value of the home, while most FHA loans will require mortgage insurance throughout the life of the loan. On the other hand, borrowers with lower credit scores and higher debt to income ratios may still find that FHA is the best option for them.
VA loans are still a very good option for veteran’s to purchase with zero down payment. There are also no monthly mortgage insurance payments on VA loans.
The US Department of Agriculture (USDA) offers a zero down loan as well. In order to qualify for a USDA home loan, borrowers must meet income eligibility requirements and the property must also be designated as eligible for this financing on the USDA recently revised maps. If the borrower and property are eligible, this can be an excellent option for homebuyers.
For more information on these products and an analysis of which may best fit your needs, or the needs of your customers, contact Marimark Mortgage at 866-910-8020.