How to Score a 3% Low Down Payment Mortgage Roger Odoardi It’s no secret that one of the biggest challenges in getting approved for a home mortgage loan is coming up with that 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 upon thousands of your hard earned money? Seems far-fetched right? Not anymore. Believe it or not, there is now a low down payment home loan program available for first time homebuyers who are strapped for cash and just waiting to enter the real estate market. “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 Low Down Payment Home Loan Options Mortgage giant Freddie Mac announced in December it would reduce the minimum down payment on certain mortgages from 5% to 3% through a program called Home Possible Advantage(SM). The 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 program terms 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. Fannie Mae released a similar program at the exact same time. The low down payment program came as an extension of its existing MyCommunityMortgage (MCM) program that also included a 3% down payment option. Fannie Mae’s program terms 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. 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. According to this NY Times article, it would take 20 years for a household earning about $50,000 to save 10 percent, plus closing costs, for a $158,000 home, according to calculations by the Center for Responsible Lending. These new programs now make saving for that inevitable down payment much more possible than ever before. “First-time homebuyers have had trouble, and a lower down payment always helps,” said Mark Goldman, a mortgage broker quoted in this LA Times article. 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 however. 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 posses 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: 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—despite having 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 the Blue Water Mortgage office in Hampton, NH. Roger graduated from the University of New Hampshire Whittemore School of Business and has been in the mortgage industry for over 20 years. Roger has originated over 2500 residential loans and is licensed in New Hampshire, Massachusetts, Maine, Connecticut and Florida.