Remember that time, prior to bank bailouts, when it seemed like it was pretty easy to get a home loan? We just may be heading back to a simpler time. Fannie Mae and Freddie Mac are bringing back the 3% down mortgage and it may be a lifesaver as we watch interest rates increase. If you are struggling to save your 20%, here is what you need to know and some tips that can help you make the best decision.
The Home Ready Program
Fannie Mae is offering their Home Ready Program with just a few requirements aside from the 3% down. The program is open to all low and mid-income homebuyers and are open to first-time or repeat homebuyers. For first-time homebuyers in low-income neighborhoods, there is no income limit. It appears the requirement for the credit score is that you land between 620 and 680. This program also allows you to cancel your mortgage insurance once you reach 20% equity in your home. Have rental income or want to make the home you are buying a rental? That’s okay, you still can qualify for this program. Lastly, Fannie Mae requires homeownership education. Taking a homeownership class through a non-profit agency is an excellent way to keep you motivated and ensure you know the best practices of buying and owning your own home. A person who goes through a homeownership education program is more likely to be a successful homeowner and less likely to default on a loan.
The Home Possible Program
Freddie Mac is offering their comparable Home Possible Program with a few differences in comparison to the Home Ready Program. There are no income limits for underserved areas and you can also cancel your mortgage when you reach 20% equity in your home. This is where the differences begin. The required credit score is 640. The home you are buying must be your primary residence. Homeownership education programs are only required of first-time homebuyers and for certain limited situations.
Is It Really A Good Idea?
It truly appears to be a great idea if you are wanting to be a homeowner and are struggling to save enough up to qualify for a loan. It even competes with the FHA loans that require a slightly higher down payment (3.5%) but doesn’t require that high of a credit score (580) and healthy competition is a good thing for the housing market.
A Few Good Practices
As with any program that sounds really good, there are a few good practices to adopt so that you can make the most of the program. When it comes to homeownership education classes, we strongly suggest everyone take them if they can. Even if you were already a homeowner, revisiting the information available is valuable to empower you and make the experience the best it can be. Secondly, we advise saving 4% or more because of the fees you will have to pay at closing. If you save your $6,000 down payment you may find yourself needing to scramble for an extra $2,000 to close the deal. Honestly, the more you can save the better it is for you. You can use the extra savings to make a bigger down payment, put it into a savings account for maintenance on the home, or save it into an emergency account so that you can make a mortgage payment if your income were to drop.
Fannie Mae and Freddie Mac are bringing some good stuff to the table to help everyone be the homeowners they want to be. Will you be taking a leap into one of these awesome programs?