Now, there is a good news for first time homebuyers as Freddie Mac and Fannie Mae have introduced 3% down payment option for seeking home loan. The announcement was made public on December 8, 2014.
In a regular scenario, banks and financial institutions lay stringent terms and conditions for granting loans to seekers. In most of the cases, banks offer home loans to borrowers with 20% down payment conditions. Before advancing loans, financial institutions are very concerned about credit scores of borrowers in order to avoid cases related with defaults.
Who Will Benefit Under New Home Loan Scheme?
The proposed move will target first time home buyers especially young buyers who do not have sufficient time for saving a big amount for purchasing a property. The new program aims at expanding credit facility to these borrowers, said Mark Palim, who heads strategic and economic researches at Fannie Mae.
Granting such loan by making a 3% down payment does not mean that this facility will be extended to every loan seeker. There are certain terms and conditions that a borrower has to qualify for meeting loan requirements.
A Borrower Needs To Fulfill Some of These Terms And Conditions
The terms and conditions that a borrower needs to fulfill remains almost the same for both companies. But what differentiates the lenders is the credit score policy. In order to meet the new home loan requirement, a borrower has to maintain a credit score of 620 if he or she wants to approach Fannie Mae or an authorized lender.
If a loan seeker wants to fulfill home loan requirements through Freddie Mac, a credit score of 660 is desirable.
Apart from meeting credit score issues, borrowers will be required to furnish proper documents related with their income, job status and assets.
Now, with their new home loan plans, both Freddie Mac and Fannie Mae want their customers to attend home ownership counseling session, so that cases of default can be avoided.
Proposed Home Loans Will Be Available At Fixed Rate
At the press meet, officials of Fannie Mae and Freddie Mac explained that borrowers could avail proposed home loans at fixed rate of interest. So, people will not face difficulty in repaying EMIs under this new scheme.
New Home Loans Are Economic Than Those From FHA
Federal Housing Administration (FHA) loan can also be availed by making a down payment of 3.5%, said Palim. This kind of loan requires borrower for paying private mortgage insurance premiums over the entire period of mortgage. So, the cost of seeking a loan shoots up.
As per Freddie Mac and Fannie Mae loan programs, borrowers can avail options for cancelling private mortgage insurance premiums after the mortgage balance falls below 80% of a property’s value. Generally, mortgage balance drops when value of a home rises or borrowers have made sufficient payments.
This will be added advantage for loan seekers as they will be able save thousands of dollars in case their properties face price rise for about four years, said an official source. Fannie Mae has started disbursing new home loans through online from December 13, 2014 while Freddie Mac has plans for marketing the loan from March 23, 2015.
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