The director of the Federal Housing Finance Agency has addressed the up and coming lower down payment requirements for conventional loans that are backed by Fannie Mae and Freddie Mac. This new program comes on the heels of the housing crisis that was quickly followed by very strict lending standards and very few mortgages being written. The goal of loosening the down payment requirements on conventional loans is to encourage more lending, while not letting things get out of hand. Today there are many protections in place to protect banks and borrowers from fraudulent lending, in an effort to prevent another housing crisis.
Lower Down Payments are Coming
The good news in the latest talks coming from FHFA is the decreased down payment that many borrowers will be able to benefit from when applying for a mortgage. The new guidelines take into consideration the fact that many borrowers that have stellar credit, might not have an excessive amount of extra money to put down on a home for a down payment. As it stands right now, these borrowers would be left out in the cold. The goal of the lower down payment program will allow these borrowers to put as little as 3 percent down on their home and still obtain the conventional financing that they deserve.
The compensating factors that are required for a low down payment loan will differ by lender. There are those requirements that are set by Fannie Mae and Freddie Mac and then there are the additional requirements that individual lenders set. A few key areas to consider include:
- Credit History – Your credit history will need to be very strong. This means no late payments in the last 12 months, no collections and a healthy amount of credit lines that are either paid off or have minimal credit outstanding.
- Debt-to-Income Ratio – The lower your debt-to-income ratio, the more favorable your loan terms will be. If your housing debt ratio is high, chances are you will not be granted approval for the low down payment loans. Lenders want to see a sizable amount of income left over after the monthly obligations are paid in order to decrease the risk of default.
It should be noted that no income, no asset loans are no longer an option. Every factor that goes into your loan approval needs to be fully verified by the lender in order to be considered.
Another compensating factor that lenders will require is the need for housing counseling. The counseling is not meant to be a bad thing or a punishment by any stretch of the imagination; it is meant to educate the borrower, in essence, protecting him from a loan that he could not afford. The education goes over the basics of home ownership and a mortgage, ensuring that all applicants have a full understanding of the loan that they are getting into. This is in a concerted effort to thwart the housing crisis from occurring ever again.
It might not be possible for everyone to qualify for a conventional mortgage with a low down payment, but it will soon become reality for many. The changes are set to take place in 2015 with the hopes of putting more excitement into the housing industry. If you are one of the borrowers that does not have a large amount of money to put down on a home but wishes to become a home owner, there are options available to you. Next year you can start by inquiring about your eligibility for the low down payment conventional loans, but if you find that you are ineligible, there are other programs that might be better suited for your situation.Click to See the Latest Mortgage Rates»