How to Score a 3% Low Down Payment Mortgage Roger Odoardi Reading Time: 4 minutesIt’s no secret that one of the biggest challenges in getting approved for a home mortgage loan is coming up with a hefty down payment. Traditional down payments of 5%, 10% and even 20% cost would-be homebuyers A LOT of money and therefore are among the biggest reason people don’t end up entering the housing market. But what if there was a way to buy a new home that didn’t involve forking over thousands of dollars? Fannie Mae and Freddie Mac both have programs for a 3% down home mortgage payment. “Fannie and Freddie’s new 3% down payment programs are an additional tool to make homeownership affordable. But even though these programs lower the required down payment, it’s still important to work with your broker to understand your debt to income ratio, your monthly payments and ensure that this is a sound decision.” – Jason Caruso, Director of Operations, Blue Water 3% down payment mortgage options In December of 2014, mortgage giant Freddie Mac reduced the minimum down payment on certain mortgages payment on certain mortgages from 5% to 3% through a program called Home Possible Advantage(SM). This affordable conforming, conventional mortgage program was designed to “make responsible homeownership accessible to more first-time buyers and other qualified borrowers.” For instance, someone buying a $300,000 home would only have to come up with a down payment of $9,000 as compared to $15,000. That $6,000 difference can mean a lot to a first time homebuyer. Freddie Mac’s HomePossible Program This program is open to anyone who meets certain requirements, but first-time homebuyers must participate in a home ownership education and counseling program. All participants will have to pay for private mortgage insurance. Minimum credit score of 660. Income limit is 80% of the Area Median Income (AMI). Fannie Mae’s Home Ready Mortgage Program This program is available to anyone who has not owned a primary residence for three years. Participants will not need to participate in an education and counseling program. All participants will have to pay for private mortgage insurance. Minimum credit score of 620. Income limit is 80% of the Area Median Income (AMI). The move to create a low down payment home loan by both Fannie Mae and Freddie Mac are considered by many mortgage industry experts to “broaden the pool of home buyers and boost the real estate market.” They are also expected to help first time homebuyers who have good credit, but little cash, and have otherwise sat on the sidelines throughout the housing recovery up until this point. Home Ready vs Home Possible The HomeReady and Home Possible loans are similar but have a few key differences. With the HomeReady loan, borrowers need a credit score of at least 620. Depending on the lender, Home Possible borrowers need a credit score of at least 660. One of the most notable is the requirements for multi-family homes. The HomeReady mortgage requires a 15% down payment for 2- to 4- unit homes and 25% for a 3- or 4-unit property. With the Home Possible loan, borrowers must 5% for all 2- to 4-unit homes. Like the single-family home mortgages, the borrower must use the property as their primary residence. HomeReady Home Possible Down Payment Minimum 3% 3% Minimum Credit Score 620 660 Private Mortgage Insurance Required Yes Yes Income Limit 80% of AMI 80% of AMI 2-Unit Down Payment Minimum 15% 5% 3- and 4-Unit Down Payment Minimum 25% 5% Other Freddie Mac and Fannie Mae Loan Options Freddie Mac The HomeOne® program is another 3% down payment mortgage option. Unlike the HomePossible loan, there is no income limit, and private mortgage insurance is not required. Fannie Mae The 3% Down-Payment program is very similar to the HomeReady mortgage but is only available to first-time buyers and must be used for a one-unit primary residence. Conventional 97 Loan Options Fannie Mae and Freddie Mac introduced the Conventional 97 program back in 2014 to compete with the FHA loan’s 3.5% down payment requirement. The 97 loan is called such because its loan-to-value ratio is as high as 97%. In order to qualify for a Conventional 97 loan, a borrower cannot have owned a property within the past three years and must have a minimum credit score of 620. Is a 3% Down Mortgage the right option for me? A 3% down payment mortgage is available to everyone, but may be particularly beneficial for: First time homebuyers Recently graduated students with high loans but a steady income Lower-income individuals who can’t put 20% down on a mortgage Homebuyers looking at real estate as part of a bigger investment portfolio Pros Cons Great for first time homeowners You can buy a house earlier Don’t need to save up for a large down payment Middle- to -high-income borrowers may not qualify Can’t be used for investment property High credit score is required Private mortgage insurance is required How to take advantage of these new low down payment home loan programs Getting mortgage terms with such a low down payment is not without its own set of stipulations. Both mortgage programs include the following terms: Loans are for fixed-rate mortgages on single-family homes. Home must be the borrower’s primary residence. Borrower must provide full documentation of the ability to repay the mortgage. At least one co-borrower is a first-time buyer. Other options for cash-strapped homebuyers There’s always a low government down payment loan option—which allows for homebuyers to have less than stellar credit and still get a loan with a down payment of at least 3.5%. Only approved lenders can offer this loan. This program also comes with its own set of terms, the most important of which includes: The borrower needs a credit score of 580 or higher. Borrower must pay upfront mortgage insurance premium and annual mortgage insurance premium. At Blue Water Mortgage, we’re always looking out for homebuyers or homeowners with a questionable credit history. Our team of experienced mortgage professionals has helped numerous clients secure the loan they need— even if they have a few red marks on their credit report. Contact us today to find out how we can help you. Roger Odoardi Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.
