Millennials and Americans who survived the Great Recession by siphoning from savings accounts are the targets of a new program that allows first-time home buyers to get a loan with as little as 3 percent down.
The new guidelines affect loans backed by Fannie Mae and Freddie Mac. The two government-sponsored entities don't make loans, but buy up qualified home mortgages from lenders, bundle them with a guarantee against default and sell them to investors worldwide.
Fannie Mae considers a first-time homebuyer someone who has not owned a home in the past three years. Freddie Mac's definition for first-time homebuyer is someone who has never owned a home.
There is concern that allowing just 3 percent down will lead to more defaults as borrowers have less to lose by walking away from payments.
The 3 percent down loans are geared for low to moderate-income buyers, but require borrowers to undergo similar financial scrutiny as in current loan programs, including documented and verified income levels. Only fixed-interest rate, conventional mortgages are considered, and borrowers must get private mortgage insurance.
Freddie Mac is requiring all borrowers to participate in housing counseling, while Fannie Mae doesn't require counseling for all loans.
A mortgage can already be obtained with 5 percent down, but White said the difference between three and five percent can be the difference of whether a person can buy a home. On a $200,000 home, five percent down would be $10,000. Three percent down is $6,000.
"The number one hurdle to increasing home ownership is the down payment," said Skip McDonough, president of Jupiter-based Family Mortgage. "If you tried to accumulate a down payment during the past few years, and you're not getting any raises, it's very difficult."
Florida's rate of home ownership fell to 66 percent last year, after reaching a high of 72.4 percent in 2005 and 2006.
Nationally, home ownership was at 65 percent last year, down from 69.9 percent in 2005.
"I think this will bring people back into the market," White said about the 3 percent downpayment.
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