New mortgage options may boost buying activity

Stew Larsen
Posted by Stew Larsen
Mortgage Banking

First-time homebuyers’ biggest obstacle to buying a home is usually the down payment. And when first-time homebuyers have trouble getting into homes, then move-up buyers can also be affected. Relief may be on its way.

Rear view of young couple outdoors wearing coats, arm in arm, looking at house they just got the keys to.The leading reason renters ages 25-44 expect to keep renting is because they can’t afford a down payment for a mortgage, according to survey results from Freddie Mac out this week (Dec. 8).

Down payment as low as 3%

One way to help those potential homebuyers is to lower down-payment requirements. That’s exactly what Freddie Mac and Fannie Mae have done this week. Freddie Mac announced its Home Possible Advantage, a new, more affordable mortgage with a down-payment option as low as 3% for creditworthy low- and moderate-income borrowers. Similarly, Fannie Mae unveiled its own 97% loan-to-value option aimed primarily at first-time homeowners.

Fannie Mae and Freddie Mac have a big influence on mortgage lending, though they do not provide mortgages. Rather, they acquire loans from banks, like Bank of the West and others, and the two entities’ willingness to acquire 97% loan-to-value (LTV) mortgages will likely make it easier for banks to issue these mortgages.

I agree with Fannie Mae Executive Vice President Andrew Bon Salle, who said: “This option alone will not solve all the challenges around access to credit. Our new 97% LTV offering is simply one way we are working to remove barriers for creditworthy borrowers to get a mortgage. We are confident that these loans can be good business for lenders, safe and sound for Fannie Mae, and an affordable, responsible option for qualified borrowers.”

Stimulus for more homebuyers?

The news is also good for existing homeowners. In order for a current homeowner to move up to a bigger or nicer home, someone has to buy their existing home. If first-time homebuyers are struggling to get into the market, would-be move-up buyers may find it harder to sell their existing homes and buy a home that fits their needs and desires.

Having entities like Fannie Mae and Freddie Mac providing more options for the first-time buyers may help create more buying activity.

This news, combined with stable home prices and relatively low mortgage rates, looks like one more piece of a puzzle that may make for a very good buying season come springtime.

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