Wednesday, 20 February 2019
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This Old House - Do-it-Yourself

3 Percent Down?

Written by Posted On Wednesday, 16 January 2019 05:00

Government-backed mortgage loans, VA, FHA and USDA, require little to no down payment. FHA loans ask for a down payment of at least 3.5 percent of the sales price while the other two don’t require any down payment whatsoever. But did you know there are conventional loans that also accept a down payment of just 3.0 percent? There are three such programs, Fannie Mae’s Home Ready, Freddie Mac’s Home Possible and the Conventional 97, another Fannie entry. But the Conventional 97 comes with fewer strings attached.

Home Ready is a program designed for first time buyers and asks for a 3 percent down payment. The program was designed to help underserved areas and geared toward low to moderate income buyers. The property must be owner occupied and there are income limitations for the borrowers. Borrowers cannot make more than 100 percent of the median income for the area.

In certain areas designated as high-minority, there is also an income limit at 100 percent of median income. Home Possible is Freddie Mac’s entry and has similar restrictions regarding income and location. Because of the income limitations and areas served, there will be limits regarding the final loan amount. Buyers must not have owned a home within the previous three years.

For both programs, borrowers must take a Home Buyer Education Course from an approved provider. The lender has a list of such agencies that help consumers get into their first home.

The other player in this mortgage world is the Conventional 97. This program also requires just a 3 percent down payment but there are no restrictions regarding loan limits. Instead, the only limit is the one all conforming loans have which is $484,350 in most parts of the country. Like the others, the property must be for a primary residence and the Conventional 97 cannot be used to finance a rental or investment property.

This program has been around for several years but appears to be catching on. The Conventional 97 can be compared to an FHA loan, the primary difference being the 3 percent needed for the conventional loan and 3.5 for the FHA. FHA loans also have a county-by-county loan limit as well, but they’re going to be higher compared to Home Ready and Home Possible. For most parts of the country, the maximum FHA loan for 2019 is $389,350.

All of these low down payment options will require some form of mortgage insurance and some premiums are higher than others. But if you or someone you know is looking for a low down payment loan program, take a look at the Conventional 97 while comparing options.

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David Reed

David Reed (Austin, TX) is the author of Mortgages 101, Mortgage Confidential, Your Successful Career as a Mortgage Broker , The Real Estate Investor's Guide to Financing, Your Guide to VA Loans and Decoding the New Mortgage Market. As a Senior Loan Officer and Mortgage Executive he closed more than 2,000 mortgage loans over the course of more than 20 years in commercial and residential mortgage lending.

He has appeared on CNN, CNBC, Fox Business, Fox and Friends and the Today In New York show. His advice has appeared in the New York Times, Parade Magazine, Washington Post and Kiplinger's as well as in newspapers and magazines throughout the country.

Reed was the former Technology Chair for the Texas Mortgage Bankers Association, Board Member and President of the Austin Mortgage Bankers Association. He is married and a father of three in Austin.

www.cdreed.com
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