Fannie Brings 3% Down Home Loan Back

Fannie Mae Rate

Fannie Mae 3% Down Program

Do you hear that beeping noise?  No need to worry! Fannie Mae just backed up and over recent guideline changes to make our lives better!  The Return of the 3% down Conventional Loan is here.  Fannie Mae brought back an amazing 3% down Conventional Loan.  Yes, the same loan they recently eliminated … has been reborn!

3% Down Payment Conventional Home Loan

This time it is just for first time buyers though.  Below are the key bullet points so you can pass this on to your valued clients.

  • 3% Down Payment
  • Low minimum score requirements – contact us for more
  • At least one borrower must be FTHB
  • Primary residence only
  • Single family 1-4 units, condo and town-homes
  • No Income Limits

Why is Fannie Bringing Back 3% Down Mortgages?

Fannie/Freddie is committed to make mortgage credit more available.  The 3% down home loan is a big step in toward that goal.  Specifically, Fannie based this product update on research that showed them the biggest hurdle for a first time home-buyer is down payment.  You may be thinking FHA however FHA currently offers a few cost disadvantages compared to this Conventional option.  Check out this side by side comparison:

Scenario Details:   Buyer with 740 credit, purchase price $250k

FHA with 3.5% down:

Down payment: $8750
Rate: 3.75% (4.651% APR)
Monthly payment: $1603 (PITI*) – mortgage insurance $276/month
Up front MI premium costs: $4221

Conventional with 3% down:

Down payment: $7500
Rate: 4.25%  (4.71% APR)
Monthly payment: $1624 (PITI*)  – mortgage insurance $222/month
Up front MI premium costs: $0

3% Down Conventional Loan compared to FHA

  1. Eliminates $4221 mortgage insurance premium
  2. Mortgage insurance is lower
  3. Down payment is lower
  4. Mortgage insurance will eventually go away (FHA monthly mortgage insurance payment is permanent)
  5. Max loan amount is $424,100 (vs. $279,450 with FHA in Maricopa County)

Disadvantages of a 3% Down Conventional Loan Compared to FHA

  1. Rate is slightly higher (how much depends borrowers credit score)
  2. Credit standards (such as post short sale, post foreclosure etc…) are tighter than FHA

FHA is still a great option if a borrower does not qualify for Conventional financing however having this 3% down option back gives first time buyers another great lending choice.  I am still waiting for Fannie to back up on the Aug 16th short sale time frame reduction to 2 years from 4 years.

* PITI = Principal Interest Taxes and Insurance.  Taxes used = $150 per month  Insurance used = $60 per month

By Jeremy House
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