There’s a misconception out there that you need 20% down in order to get a mortgage. That may have been the case in previous generations, but that isn’t the case anymore. While there are some benefits to a higher down payment, you can now get into a home with as little as 3% down.
This could help you buy a home if you have some savings and a steady income but haven’t been saving for years. It can also help you upgrade your home if you need more space.
Fannie Mae
Fannie Mae has a couple of low down payment programs for first-tme home buyers that could be very attractive options. They’re both 3% down payment options, but there are a couple of differences that could push you toward one program or another.
HomePath Ready Buyer Program
Fannie Mae is more than a mortgage investor – it owns some properties after foreclosures. Fannie Mae isn’t in the business of owning homes, so they’ve introduced an incentive for well-qualified buyers to take the property off their hands, HomePath Ready Buyer Program.
First-time home buyers who buy a property through Fannie Mae’s HomePath site have the opportunity to purchase a home with as little as 3% down. The buyer can also get up to 3% in seller concessions from Fannie Mae in order to save on closing costs.
In order to qualify for this program, there are a few special requirements. First, at least one of the clients on the loan must be a first-time home buyer. This is defined as not having had any ownership interest in a residential property in the last three years prior to application.
The client also must take and pass a HomePath Ready buyer education course. The course takes anywhere between four and six hours for most people and is available in English and Spanish. At completion, you will get a certificate for your Real Estate Agent to submit with your offer and any request for closing cost assistance. The course costs $75, but this can be reimbursed as part of your closing cost assistance.
Alternative 3% Down Option
If you’re not buying a HomePath property, there’s still a 3% down payment option available to you. The main difference between these programs is that you can’t ask for closing cost assistance. Though, there are some commonalities between the two programs: The lowest median FICO credit score for all clients on the loan must be 620 or higher, and the property has to be a one-unit primary property.
Also, the maximum Debt-To-Income ratio you can have is 50%. DTI is a comparison of your debts including car and house payments, student and personal loans and credit card payments against your monthly income. For the best chance of approval, your DTI should be no higher than 45%.
Freddie Mac: Home Possible
This loan option is available to everyone; you don’t have to be a first-time home buyer. The only restriction here is that you can only own one other residential property. If both clients are first-time home buyers, you’ll also need to take a homeownership education course.
In terms of other restrictions, the income of all clients on the loan generally has to be no more 100% of the area median where you’re looking to buy. If it’s an area that Freddie Mac considers underserved, this restriction may not apply. Finally, this program requires a median FICO score no lower than 620.
