New Changes to Low Down Payment Mortgages: What You Need to Know

Recently, mortgage investor Freddie Mac clarified that it would not purchase certain low down payment loans that include lender contributions to the buyers’ down payment if they were funded through premium pricing.

Does this mean super low down payments are now a thing of the past?

No. This announcement only affects proprietary grant programs offered by specific lenders, like the ones listed in this HousingWire story.

These programs allow buyers to put only 1% down with the other 2% of the down payment provided by the lender. The new change will require the first 3% down to come from either the borrower’s personal funds and/or other eligible sources such as a gift from a family member or approved non-profit.

How do these new rules impact you?

First, these changes only affect loans under this program closing on and after November 1, 2017. So, if you are in the process of buying a home and you are using one of these programs, the rug won’t be pulled out from under you as long as you close before November.

Second, these lenders, along with many others, can still offer grants and down payment assistance programs provided by Housing Finance Agencies and nonprofits, as long as the program meets either Freddie Mac, Fannie Mae, FHA, VA, or USDA guidelines depending on which entity the lender plans to sell the loan to.

Third, these new rules don’t impact any of the traditional grants or down payment assistance programs available. And, they can still be layered with Freddie Mac’s Home Possible Advantage first mortgage product as long as your lender determines it meets Freddie Mac guidelines.

That means, you can still use down payment assistance provided by your state or local Housing Finance Agency. These programs are still considered eligible sources of funds for the down payment as long as the program meets investor guidelines. Your lender should be able to confirm that for you. Keep in mind there will usually be some type of minimum required borrower contribution involved.

What down payment help is still available?

Down Payment Resource tracks approximately 2,400 homeownership programs. Because this change is limited to only certain proprietary loan programs, it’s business as usual for 99.9 percent of the programs you’ll find in Down Payment Resource.

About 70 percent of the programs we track offer some form of down payment or closing cost help with benefits often in the $10,000 range.

Most of these programs require less than 1% down. Some are grants forgiven immediately and some can be forgiven over a period of five years or so. Programs that are not grants are often soft second loans with no interest, no monthly payment, and not repaid until the home is sold or refinanced.

Plus, there are still VA loans available with zero down and no mortgage insurance.

Evaluate your options by search for down payment help in your area. Talk to your local housing agency, agent and lender about your goals for your down payment and monthly home payment.