Fannie Mae and Freddie Mac Now Allowing 3% Down Payments
According to the National Association of Realtors, the Federal Housing Finance Agency (FHFA) recently announced a change that affects government-sponsored enterprises (GSEs) to finance loans with lower down payment requirements. This means GSE's like Fannie Mae and Freddie Mac now allow 3% down payments for certain home loans.
Fannie Mae and Freddie Mac both eliminated their 3% down payment products in recent years in lieu of higher 5% minimums. However, roughly two weeks ago, the new Director Mel Watt announced the restitution of this program.
In a speech Friday at the Residential and Economic Trends Forum at the 2014 REALTORS® Conference & Expo, the Watt clarified that, “...the guidelines will require that borrowers have compensating factors — such as housing counseling, stronger credit histories, or lower debt-to-income ratios — in order to make the mortgage eligible for purchase by Fannie Mae or Freddie Mac.”
FHFA economists suggests that FICOs scores are very important in mitigating risk and that a borrower with a 740 FICO score and only 3% down payment has on average a lower foreclosure rate than a borrower with a 660 and more than 20% down payment. What's more, the agency's work has shown that foreclosure rates vary by debt-to-income ratio.
Federal Housing Association (FHA) financing has been expensive in the past, though, as the annual mortgage insurance premium has increased nearly eighty basis points since 2008. The GSEs' entrance into this portion of the market will provide a more affordable option to the FHA, but it will be priced relative to risk by both the agencies and their private mortgage insurer (PMI) counterparties.
Though the news of Fannie Mae and Freddie Mac reinstating their 3% down payment program has been received with mixed reviews, many potential home buyers believe the program will improve affordability for a limited number of borrowers and see it as a positive change in the real estate market.
For more details about qualifying for a loan for a home in the Phoenix area or if you need Phoenix property management services for one of your properties, please contact the Simply Property Management-Paielli Realty, Inc. Team today!
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