3 Percent Down Payment Conventional Loan Requirements And Guidelines

First-Time Buyer 3 Percent Down Payment Conventional Loan

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers Fannie Mae and Freddie Mac’s percent down payment conventional loan program for first-time homebuyers. Fannie Mae and Freddie Mac’s mission is to purchase mortgage loans from banks and lenders and 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 percent 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.
First-Time Buyer 3 Percent Down Payment Conventional Loan

3 Percent Down Payment Conventional Loan Guidelines

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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 have not owned a home for the past three years. Fannie Mae and Freddie Mac have the 97 LTV Conventional loan program for first-time homebuyers:

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 and their general monthly debt. However, coughing up the down payment is a major barrier for all home buyers today.

First-time homebuyers have had no interest in a home in the past three years. Those who dream of homeownership can have excellent credit, excellent income. But without the down payment and closing costs, they cannot proceed to homeownership. High living costs have made saving almost impossible for many hard-working Americans.

Down Payment Requirements On Conforming Loans

The great news is that the two mortgage giants, Fannie Mae and Freddie Mac, have brought the first-time 3 percent down payment conventional loan program. The first-time homebuyer’s 3 percent down payment conventional loan was an extremely popular program. But Fannie Mae and Freddie Mac discontinued it in 2014. A minimum 5 percent down payment is required to qualify for a conventional loan. Homebuyers with a 3 percent down payment can qualify for a conventional loan. Conventional lending guidelines need to be met by the home buyer.

First-Time Buyer 3 Percent Down Payment Conventional Loan

Home Possible Advantage By Freddie Mac

Freddie Mac’s Home Possible Advantage program is offered to first-time home buyers 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 Percent Down Payment Conventional Loan

Fannie Mae’s 3 percent down payment conventional loan program is available for first-time homebuyers only. It is also available for homebuyers who have not owned a primary property in the past three years. No housing counseling is required like Freddie Mac except for the My Community Mortgage home purchases. The 3% down payment conventional loan program is only available for owner-occupant primary homes, and private mortgage insurance is mandatory.

Reasons Why Homebuyers Need To Go With Conventional Versus FHA Loans

Fannie Mae has already launched the 3 percent down payment conventional loan program on December 13, 2014.  Freddie Mac launched the 3 percent down payment conventional loan program on March 23, 2015. Sometimes, homebuyers can only qualify for conventional loans, not FHA loans—large outstanding student loan balances.

Conventional and FHA loans accept Income-Based Repayment (IBR) payments. HUD now accepts income-based repayment. If a borrower has $200,000 in outstanding student loans and an IBR payment that reports on credit bureaus is $80.00 monthly, that monthly IBR payment is used.

Conventional and FHA loans now accept income-based payments for debt-to-income ratio calculations. Fannie Mae, Freddie Mac, and HUD all take 0.5% of the outstanding student loan balance and use it as a hypothetical debt for debt-to-income ratio calculations on deferred student loans. The 0.50% of the outstanding student loan balance is used as a hypothetical debt.

First-Time Buyer 3 Percent Down Payment Conventional Loan

Mortgage Included In Chapter 7 Bankruptcy

For borrowers with a mortgage included in Chapter 7 Bankruptcy, there is a four-year waiting period to qualify for conventional loans from the discharge date of Chapter 7. The housing event needs to have been finalized. The recorded date of the housing event (foreclosure, deed-in-lieu of foreclosure, short sale) does not matter. The mortgage cannot be reformed after Chapter 7 Bankruptcy. With FHA Loans, there is a three-year waiting period after the recorded date of the housing event, and the discharge date of Chapter 7 Bankruptcy does not matter.

Buying High-Priced Homes

Homebuyers of higher-priced homes must consider government and conventional loans with maximum loan limits, except VA loans. FHA loan limits in 2023 are capped at $472,030 in regular areas and $1,089,300 in high-cost counties on single-family homes. Conventional loan limits are capped at $726,200 in regular areas and $1,089.300 in high-cost counties on single-family homes.

Any loan limit higher than the conforming or FHA loan limit caps are called non-conforming loans or jumbo loans. Homebuyers need to put additional down payment above the maximum loan limit or get a piggy back second mortgage. If not, homebuyers of high-priced homes need to get jumbo loans versus traditional conforming or FHA loans.

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 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The Team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.

First-Time Buyer 3 Percent Down Payment Conventional Loan

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