Down payment requirements that rose after the latest mortgage crisis, are easing again as lenders and mortgage backed securities try to bring in more new buyers.
One of the major hurdles to home buying is qualifying for a mortgage loan. This task may not be as insurmountable as it may seem.
The Federal Housing Administration has backed loans for borrowers with lower credit scores and down payments as low as 3%, but it also required hefty insurance payments. This is all going to change.
FHA annual insurance premiums drastically dropped at the beginning of 2015. The change, from 1.35% to 0.85%, makes FHA loans a better choice for most borrowers after years of incredibly high premiums. This is beneficial towards your buying power.
“The crisis has shaken the market so much that there is no doubt there was an overreaction.”
-Fannie and Freddie
Fannie Mae and Freddie Mac guarantee more than half the country’s mortgages. At the end of 2014, the two companies announced their plans to decrease minimum down payments from 5% to 3%.
The program from Fannie Mae went into effect in December, and the one from Freddie Mac will start in March. They are both for first-time homebuyers or those refinancing their mortgage, but the Freddie Mac program is restricted to low-income borrowers.
These loans still require private mortgage insurance for down payments that are less than 20%.
This does not mean that all lenders will change their standards, but it is a step towards easier loan approval. Each lender has their own regulations referred to as “overlays”
“Rural” and VA loans
Some other types of loans have also become more popular since the recession. Despite the name, loans from the Department of Agriculture are widely open to borrowers in many locations that aren’t really rural, they also include no-money-down financing. To be eligible for USDA loans, you must have dependable income and decent credit, and cannot already own a home, exceed area median income thresholds or live in certain urban areas.
Department of Veteran Affairs loans are increasing in popularity as well, almost outnumbering FHA loans. VA mortgage backing enables veterans and surviving spouses to purchase property with no money down, no outside insurance and low closing costs. VA interest rates are usually lower, and credit and income requirements are more flexible than conventional loans.
An increase in loans with low down payments has triggered widespread criticism of more relaxed lending standards. This is one of the factors that lead to the Great Recession. The fact remains that if no one is qualifying for loans, lenders are not making a living. Somebody has to prime the pump, so to speak, to get the housing market back to where it needs to be.
Down payments are one of the largest hurdles to overcome when attempting to purchase a home. The trend towards lower down payments and looser mortgage restrictions will help everyone in the long run.
Every individual and scenario is different, even if you don’t feel you could qualify, we recommend you speak to our lending team who are well versed in everything from high net worth clients to the toughest scenarios. You will not hear no from us, we will stay the course with you guiding and educating you throughout the process and even assist you with getting prepared if you have less than perfect credit. Contact Shayla Gifford and her team at buyers@thegiffordteam.com
http://www.guildmortgage.com/officers/shaylagifford