Arecent postbytheNational Association of Realtors(NAR) revealed that inthemonths of December 2014 through February 2015, there was an increase inthenumber of first-time buyers making a down payment of 6% or less as compared to last year:
2014: 61% of first time home buyers
2015: 66% of first time home buyers
Whilethenumber of small down payments is lower than it was in 2009 when 77% of down payments were 6% or less, it does showtherecent decisions by bothFannie MaeandFreddie Macto offer 3% down payment options to certain buyers is impactingthemarket. FHFA Director Mel Watt recently explained why Freddie and Fannie made this decision:
“Thenew lending guidelines by Fannie Mae and Freddie Mac will enable creditworthy borrowers who can afford a mortgage, but lacktheresources to pay a substantial down payment plus closing costs, to get a mortgage with 3% down. These underwriting guidelines provide a responsible approach to improving access to credit while ensuring safe and sound lending practices.”
This is great news to millions of purchasers that have been deniedtheopportunity to own their own home because ofthealmost impossible burden of saving for a 20% down payment.
Will these programs create future challenges?
Certain pundits fear that low down payment programs will create a wave of foreclosures downtheroad. Mr. Watt also addressed this concern:
“To mitigate risk, Fannie Mae and Freddie Mac will use their automated underwriting systems, which include compensating factors to evaluate a borrower’s creditworthiness. In addition,thenew offerings will also include homeownership counseling, which improves borrower performance. FHFA will monitortheongoing performance of these loans.”
Also,theUrban Instituterevealed data showing what impact substantially lower down payments would have on default rates in today’s mortgage environment. Theirstudyrevealed:
“Those who have criticized low-down payment lending as excessively risky should know that ifthepast is a guide, only a narrow group of borrowers will receive these loans, andtheoverall impact on default rates is likely to be negligible. This low down payment lending was never more than 3.5 percent oftheFannie Mae book of business, and in recent years, had been even less. If executed carefully, this constitutes a small step forward in openingthecredit box—one that safely, but only incrementally, expandsthepool of who can qualify for a mortgage.”
Here are the direct links to the guidelines for each program:
Report by Ricky KhamisRealtor Report2016 Best Year for Housing in a De
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