New Low Down Payment Requirements for Home Mortgages
In an effort to boost the real estate industry and ease up the tight restrictions on mortgages put into place after the market crash a near decade ago, the government's mortgage backers Fannie Mae and Freddie Mac have announced a new change in requirements.
Before the market crash, banks had reduced income requirements for home and condo buying to ridiculous levels, allowing just about anyone to get a mortgage - whether they had the monthly income to support the payments or not. What started with wealthy investors buying pre-construction condos and new homes to "flip" and re-sell for large profits became a popular sport for nearly everyone exposed to the opportunity, including many who lived from paycheck to paycheck.
Early on, many people made a lot of money. But by the time the average person got involved, the market was slowing, and soon bottomed out entirely. Even the investors had pushed the limits and often went too far, trying to capture the last profits. The aftermath exposed thousands of mortgages made that could not be fulfilled. Foreclosures were rampant, and the US economy was nearly brought to its knees.
Since that time, restrictions have been so tight that only those with cash, impeccable credit, and stable high paying jobs have been able to buy a home or vacation property, which has put a damper on the recovering real estate industry. Income restrictions made sense; a mortgage that can not be paid back helps nobody. But down payments have always been at a minimum of 20 percent on mortgages backed by Freddie and Fannie, and banks are now reluctant to make a mortgage that is not. With the average home price of $200,000, buyers have been required to come up with a whopping $40,000 down payment. First time buyers, young couples and families, and even those with average incomes have trouble acquiring that kind of cash.
So in an effort to spur the real estate market to faster recovery, they have decided to reduce the down payment required for moderate income levels and first time buyers to an all-time low of three percent down! Other tight restrictions will still apply, and payments can not exceed 43 percent of the borrower's monthly income. This makes sense to allow middle or low income home buyers an opportunity to fulfill the American dream of owning a home, without allowing the irresponsible borrowing of the pre-bubble era. What a win-win for all concerned!
Fannie Mae may begin to offer the new loan guidelines by Christmas, aimed at first time buyers, requiring PMI or mortgage insurance payments, and a financial counseling program to qualify.
Freddie Mac is looking towards March of 2015, geared at low and middle-income buyers only, also requiring PMI and counseling. Monthly payment restrictions will remain at the 43 percent maximum levels for both.
Many young people and those who thought they could never buy a home will have a whole new and exciting option open to them, and maybe even find the dream of home ownership dropped down their chimney when Santa rides by this year. If you want to buy your first home or condo, call us right now to get started!
