Fannie Mae is working in conjunction with the federal government in an attempt to make it easier for Americans to obtain a home loan by lowering the down payment requirement. The new program is expected to enable buyers to buy a home with a down payment as low as 3%. However, the purchase of private mortgage insurance will be required in order to qualify.

For the past few years lenders have required an average down payment of 20%. As a result many Americans have been left out of the housing market. The majority of mortgages have had some form of taxpayer guarantee since the subprime mortgage crisis. In addition the government is also planning to ease on requiring lenders to take back loan defaults. Currently those interested in low mortgage loans also have the option to apply for FHA loans. However the costs and fees associated with these loans are significantly higher than those of conventional loans.

One main concern is if private mortgage insurers willingness and ability to take this risk. Theoretically PMI companies are taking on a higher risk by insuring buyers with low down payments. Lowering lending requirements will increase the risk of loan default since studies show that buyers who put down 20% are less likely to default. In addition, buyers who put 3% down are more likely to end up in underwater mortgages if house values decline slightly. Lower home values may become a reality in the future since mortgage rates (view current rates at loanDepot) are expected to rise in 2015.