Low Down Payment Programs Are Here to Stay
There has been much speculation over the recent low down payment mortgage programs introduced by the FHA along with Fannie Mae and Freddie Mac. These programs are extremely beneficial to first-time buyers, as they provide a new window of opportunity to jumpstart the housing market. However, they inevitably raise eyebrows due to the risk of improper lending practices, and ultimately a slide back into the housing crisis.
HousingWire explains the following:
“Back in March, Freddie Mac launched its Home Possible Advantage program, an affordable conforming, conventional mortgage with a 3% down payment to help more first-homebuyers and other qualified borrowers jump into the market.
This was shortly after Fannie Mae started offering its My Community Mortgage product with a 3% down payment. The programs allow those low-down-payment mortgages to be securitized by the government-sponsored enterprises.
“It’s undeniable that reduced down payments are one of the risk factors that lenders must consider. When a borrower defaults, a high loan-to-value ratio (that is, a low share of borrower equity in the home) increases the lender’s loss,” the report stated.”
Avoiding lending and underwriting risks will continue to be an issue, but the desired results of these programs is being achieved: more millennials are entering the market.
Proof that it’s working
According to RealyTrac, FHA loans were used in 23% of all financed purchases in the second quarter of 2015, up from 19% in the second quarter of 2014. Moreover, the FHA program has lowered PMI for borrowers by about $900 a year and took effect on Jan. 26 of this year.
LoanDepot LLC, the third-largest FHA lender in the country, said that its FHA loan volume for the first half of 2015 is 24% greater than the same period a year ago.
“Lower down payment requirements and lower monthly payments based on reduced PMI requirements has impacted affordability in a positive manner for FHA borrowers,” said David Norris, president and COO of loanDepot.
MarketWatch pointed out that down payments are on the rise, a sign that FHA borrowers are bringing more cash to the table thanks to their PMI savings.
It is undeniably an exciting time for first-time buyers that are ready to purchase their first home. For those considering the idea of purchasing, we highly suggest they begin saving toward the down payment. You can never start too early, and it will lead to even further PMI savings. Start saving with BoostUp and take advantage of these low down payment programs!