3 Percent Down Conventional Home Loan Financing for First-Time Home Buyers

By Ryan Dosen

 

Cash-strapped first-time home buyers caught a big break this week. Fannie Mae and Freddie Mac announced that they are adopting programs that will allow first-time home buyers to put as little as 3 percent down towards the purchase of a home. Similar programs are offered through the FHA, but the backing of Fannie Mae and Freddie Mac will make the terms much more favorable for well-qualified first-timers. This new 97 percent loan-to-value program officially becomes available on December 13, 2014.

 

“First-Time” Home Buyers?

Government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac are allowing “first-time” home buyers to qualify for their new 3 percent down programs. Fannie and Freddie define “first-time” home buyer as someone that has not owned a home in the last three years. So, you may qualify as a “first-time” home buyer even if you’ve previously owned a home. Fannie Mae will also let you qualify as “first-time” home buyers if one, but not both buyers qualify as a first-timer.

 

Conventional Loans and Financing

Fannie Mae and Freddie Mac’s new 97 percent loan-to-value program (the previous max was 95 percent loan-to-value) is only for conforming or conventional loans. Fannie and Freddie set various standards for loans that they will back or buy from banks. Loans that meet these standards are considered conforming or conventional.

When a bank issues a loan, it can keep the loan on its own books or potentially package the loan with other loans and sell them off. The selling off of loans enables banks to stay in the lending game. If banks kept all their loans on their own books, they’d be limited as to the number of loans they could issue due to capital and reserve limitations and restrictions. After their loans are sold off, capital is freed up and banks can get right back to lending. Therefore, it’s typically in a bank’s best interests to lend according to Fannie and Freddie’s standards for conforming loans.

One of the requirements and limitations for conforming/conventional loans is that the loan amount can generally not exceed $417,000. Except for in certain “high-cost” areas (like San Francisco or Manhattan, where $417,000 won’t buy much at all), first-timers looking to qualify for 3 percent down will have to keep the size of their mortgages to no more than $417,000.

The GSEs’ new program is also applicable only to standard 30-year fixed-rate financing. 15- or 20-year mortgages will not qualify and the same can be said for the increasingly popular adjustable rate mortgage.

 

More Help for Housing

Fannie and Freddie’s new 3 percent down program for conventional loans is the latest of several government-sponsored programs designed to support and boost our improving, but lukewarm housing market. Some buyers may have access to 100 percent financing through the USDA if they are buying in designated rural areas. Other buyers with lower credit scores that do not qualify for conventional financing may have slightly more costly, low down payment options through the FHA. However, for “first-time” buyers with good credit but not much money for down payments, this newest GSE-backed program may be their best option.

 

— Ryan Dosen manages The Wayne Megill Real Estate Team of Keller Williams Brandywine Valley in West Chester. Contact Ryan Dosen for buyer or seller representation or for more perspective on the local and national real estate market by emailing rdosen@megillhomes.com or calling 610-399-0338. Please also visit The Wayne Megill Team blog at www.PAHomesAndRealEstate.com.

 

This article was published by 21st Century Media and the Daily Local News (West Chester, PA). To read this article on the the newspaper’s site, please visit the Daily Local News.

 

 

To view all of Ryan Dosen’s 21st Century Media real estate columns, visit http://www.dailylocal.com/search?text=dosen.