NLBMDA: Fannie and Freddie Attracting First-Time Homebuyers

On December 8, Fannie Mae and Freddie Mac announced programs allowing for a down payment requirement as low as 3% toward the purchase of a home. The announcements are an attempt to entice more first-time home buyers into the market.

Fannie Mae’s program, My Community Mortgage, allows down payments as low as 3% for first-time home buyers on fixed rate mortgages. At least one of the borrowers must be a first-time home buyer, which is defined as not having owned a home in the past three years. In addition, the program permits homeowners with Fannie Mae-owned mortgages who do not qualify under the Home Affordable Refinance Program (HARP) to refinance their loan up to the 97% loan-to-value (LTV) level under a limited cash-out option designed to cover closing costs.

Home buyers and homeowners participating in Fannie Mae’s program must meet the same eligibility requirements as other Fannie Mae-owned mortgages, including underwriting, income documentation and risk management standards. Borrowers must have a credit score of at least 620 to qualify for the program and must also purchase private mortgage insurance.

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Freddie Mac will launch its own initiative, the Home Possible Advantage program, on March 23. It will offer the same 3% down option as Fannie Mae. A no cash-out refinancing is also available as part of the program. It will be limited to people who have never owned a home, those with moderate incomes, or buyers in under-served areas.

All home buyers meeting Freddie Mac’s underwriting standards are eligible for the program. Borrowers must have a minimum credit score of 660, verify their income, and participate in credit counseling. Fifteen-, 20- and 30-year fixed rate mortgages are available. The announcements by Fannie and Freddie are a response to concerns that current lending standards are discouraging first-time home buyers from entering the market. Historically, first-time home buyers have represented 40% of all home buyers. However, according to the National Association of Realtors, they represented only 33% of the market in 2014, the lowest share since 1987.

A lack of first-time home buyers appears to be affecting the overall housing market. According to the U.S. Census Bureau, for the third quarter of 2014 the national home ownership rate was 64.4%, its lowest level in 19 years.

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