As we head into the new year, a couple of HUGE changes are being announced that will make qualifying for a mortgage easier. Let’s take a look at the highlights:
1) Minimum Downpayment for Conventional Loans Reduced to 3% (it used to be 5%)
Fannie Mae and Freddie Mac are both offering 3% down on a conventional mortgage effective immediately. The minimum downpayment used to be 5%. Borrowers will have to meet the mortgage giants’ usual underwriting, income documentation and risk management standards. As is the case for all loans in which buyers put less than 20 percent down, Fannie and Freddie will also require that borrowers take out private mortgage insurance or other risk sharing.
Watt shared details about the new credit options to a roomful of bankers in Las Vegas, who were hopeful the options will encourage first-time buyers to join the housing market. The loans will also allow homeowners with a sliver of equity who are not eligible for the Home Affordable Refinance Program (HARP) to refinance, although they’ll have little or no ability to take cash out of their homes in the process.
2) FHA To Lower Cost Of Mortgage Insurance
Last week President Obama announced that the Federal Housing Administration (FHA), the government insurer of home loans, will lower its annual insurance premiums from 1.35 percent to 0.85 percent. For the typical FHA applicant, the reduction in premiums means a savings of about $80 on their monthly payment, according to CoreLogic’s chief economist, Sam Khater.
“So it’s positive news from a consumer welfare perspective, especially for first-time homebuyers, which account for the majority of FHA’s business,” he said, adding, “However, I think the marginal impact on sales will be small because potential buyers make the decision to purchase based on trigger events, such as a new job, marriage, kids, etc. Changes in affordability only impact how much home they can buy.”
The FHA had been the only low down payment product available until Fannie Mae and Freddie Mac announced the new 3 percent down payment product (mentioned above). This will compete directly with FHA and still be a more attractive option for buyers with a low down-payment but good credit scores. FHA still is the best (if only) option for borrowers with a spotty credit history or lower credit scores.