This BLOG On 3% Down Payment Conventional Loan Requirements And Guidelines Was UPDATED And PUBLISHED On September 3rd, 2020
Both Fannie Mae and Freddie Mac’s mission is not just to purchase mortgage loans from banks and mortgage companies but they also want to promote homeownership.
- Fannie and Freddie want to make homeownership accessible to the average hard-working family with access to credit for homebuyers, especially first time home buyers
The 3% down payment conventional loan program was re-launched by the Federal Housing Finance Agency (FHFA) to compete with HUD’s 3.5% down payment FHA Loans:
3% Down Payment Conventional Loan Guidelines
Fannie Mae and Freddie Mac allow homebuyers to qualify for a conventional loan with a 3% down payment. To be eligible, you need to be a first-time homebuyer. First-time homebuyers are buyers who did not have any ownership in a home for the past three years.
- One of the largest obstacles for home buyers today is the down payment required for a home purchase
- People can easily afford the monthly mortgage payments as well as their general monthly debt
- However, coughing up the down payment is a major barrier for all home buyers today
- Those who dream of homeownership can have excellent credit, excellent income
- But without the down payment and closing costs, they cannot proceed to the road of homeownership
- High costs of living these days have made saving almost impossible for many hard-working Americans
In this article, we will cover and discuss the Conventional Loan Down Payment Requirements And Guidelines.
Down Payment Requirements On Conforming Loans
The great news is that the two mortgage giants Fannie Mae and Freddie Mac, has brought the 3% down payment conventional loan program:
- The 3% down payment first-time homebuyer conventional mortgage was an extremely popular program
- But Fannie Mae and Freddie Mac discontinued it in 2014
- Currently, to qualify for a conventional loan, a minimum of a 5% down payment is required
- Now home buyers with 3% down payment can qualify for a conventional loans
Conventional lending guidelines need to be met by the home buyer.
Home Possible Advantage By Freddie Mac
Freddie Mac’s Home Possible Advantage program is offered to first time home buyers who participate in a housing counseling program.
- It needs to be single-family and primary residential units only
- Mortgage insurance is mandatory
On refinance conventional loans, no cash-out refinance is allowed.
Fannie Mae 3% Down Payment Conventional Loan
Fannie Mae’s 3% down payment conventional mortgage loan program is available for first time home buyers only.
- It is also available for homebuyers who have not owned a primary property in the past 3 years
- No housing counseling is required like Freddie Mac except for the MyCommunityMortgage home purchases
The 3% down payment conventional loan program is only available for owner occupant primary homes only and private mortgage insurance is mandatory.
Launch Of 3% Down Payment Conventional Loan
Fannie Mae has already launched the 3% down payment conventional loan program on December 13, 2014. Freddie Mac is has launched the 3% down payment conventional loan program on March 23, 2015.
Reasons Why Home Buyers Need To Go With Conventional Versus FHA Loans
There are cases where homebuyers can only qualify for conventional loans and not FHA Loans.
Large outstanding student loan balances:
- Conventional Loans accepts Income-Based Repayment (IBR) where HUD does not
- If a borrower has $200,000 in outstanding student loans and IBR payment that reports on credit bureaus is $80.00 per month, that monthly IBR payment is used
With FHA, 1.0% of the outstanding student loan balance is used as a hypothetical debt.
Mortgage Included In Chapter 7 Bankruptcy
Borrowers with mortgage included in Chapter 7 Bankruptcy, there is a four-year waiting period to qualify for conventional loans from the discharged date of Chapter 7:
- The housing event needs to have been finalized
- The housing event (foreclosure, deed in lieu of foreclosure, short sale) recorded date does not matter
- Mortgage cannot be reaffirmed after Chapter 7 Bankruptcy
With FHA Loans, there is a three year waiting period after the recorded date of the housing event and the discharged date of Chapter 7 Bankruptcy does not matter.
Buying High Priced Homes
Home Buyers Of Higher Priced Homes:
- FHA Loan Limits is capped at $294,515
- Conventional Loan Limits is capped at $453,100
Homebuyers of higher-priced homes are forced to qualify with conventional loans versus FHA Loans due to the higher loan limits.
Borrowers who need to qualify for a mortgage with a direct lender with no mortgage overlays on government and conventional loans, please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at email@example.com. The Team at GCA Mortgage Group are available 7 days a week, evenings, weekends, and holidays.