The emerging trend in the mortgage industry for 2015 is making home ownership even more affordable. Although current interest rates are at all time lows, thousands of potential buyers are unable to qualify for a mortgage each year. Strict lending standards and tight guidelines have been keeping many out of the housing market and restricting the amount of economic recovery in the real estate industry. Federal housing agencies have introduced various programs to help stimulate homeownership, many of these programs focusing on low down payment options.
Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac are currently offering mortgages with as little as 3% down. These loan programs aim at “first-time homebuyers”. It requires that at least one of the borrowers have not owned a home within the last 3 years. These loans make homeownership available much sooner than saving up a traditional 10-20% down payment. However, although they require a low down payment, they do have higher mortgage insurance premiums. Home buyers need to decide if paying the extra mortgage insurance is worth it rather than waiting several more years to save up a larger down payment.
Federal Housing Agencies
At the beginning of January, the FHA announced that it would be lowering the annual mortgage insurance premium to allow more applicants to qualify with lower debt to income ratios. This change was to make FHA loans more competitive. As compared to the Fannie Mae and Freddie Mac loans that only require a 3% downpayment.
In addition to low down payment loan options, FHA are also offering new loan programs for lower income earners. The Fannie Mae program, My Community Mortgage, and the Freddie Mac program, HomePossible, are designed to help moderate to low income families. The programs offer more flexible underwriting guidelines. It offers access to more lenders for families earning an income of $128,865 or less each year. Fannie Mae and Freddie Mac are requiring pre-mortgage counseling for borrowers, and do have minimum credit score requirements. One of the biggest benefits of these programs is that borrowers will make the monthly mortgage payment much more affordable to them. It will be done by paying far less in mortgage insurance.
Conclusion
There are many critics to these loan programs. They argue that this will result in another rush of defaults on home loans. However, you should not confuse these loan programs with the subprime lending that resulted in the housing collapse of 2008. Lending guidelines still remain tight so applicants must qualify through credit worthiness, debt to income ratios and employment history.
What’s your opinion on the low down payment loan programs? Do you feel they will result in another rush of default loans? Or do you think it will be the stimulus that the housing market needs?
For expert guidance and opinion, contact Aceland Mortgage.