First Time Buyers Should Be Excited!
Prior to this week's announcement, Fannie Mae and Freddie Mac issued loans with a minimum of a 5 percent down payment—however, the standard down payment for mortgages insured through Freddie Mac and Fannie Mae was 20 percent, the Associated Press reports.
That meant a first-time buyer would need about $41,600 in cash to buy a median-priced home of $208,300, according to National Association of REALTORS® housing data. With a 3 percent down payment, buyers would need a fraction of that – about $6,200 to close on a loan.
That may make home ownership more feasible for first-time buyers. A recent study by RealtyTrac showed that it can take on average 12.5 years for first-time buyers to save up a 20 percent down payment based on a current personal savings rate at 5.6 percent. The figure also takes into account current median home prices.
In October, only 29 percent of home purchases were from first-time buyers – way below the historic average of 40 percent, NAR reported. NAR issued a report last month that showed despite an improving job market and low interest rates, the share of first-time buyers had fallen to its lowest point in nearly three decades.
The new loans announced by Fannie Mae and Freddie Mac will be fixed-rate mortgages for up to 30 years, available only on a primary residence. Fannie plans to begin issuing the 3 percent loans before the end of the year. Mortgage insurance payments will be required, and qualified buyers will need to complete a financial counseling program.
Freddie Mac plans to start issuing its 3 percent loans to low- and moderate-income borrowers in March 2015. Eligible borrowers will be required to earn less than an area’s median income and will also have to pay mortgage insurance and undergo financial counseling to participate. Monthly payments also will have to fall under 43 percent of the borrower’s income.
Source: “More Americans to Buy Homes with 3 Percent Down,” The Associated Press (Dec. 11, 2014)