Fannie Mae and Freddie Mac are now underwriting mortgages which only require a 3% down payment. These new 3% down payment mortgages are only available for first time home purchasers. Is this a good idea? It is thought that home ownership is the foundation in building equity and wealth. It is anticipated these new relaxed mortgage regulations will make it easier for middle class Americans to purchase homes.
The 3% Down Payment Mortgage
The purpose of the 3% mortgages is to make it affordable for young people who don’t have significant funds for down payments, but who have reasonable income, to enjoy the benefits of home ownership. It is also thought the 3% mortgage program will have an affirmative impact on the housing market in the United States.
Mortgage Safeguards
There are a number of safeguards which have been built into this new 3% mortgage program. The current credit requirements to obtain a mortgage shall remain the same. Individuals applying for these mortgages will have to document their income. Only fixed rate mortgages will be available with 3% down payments and the program will only be available for primary residences. It will also be necessary for the prospective home purchasers to have private mortgage insurance.
Historical Perspective of 3% Mortgages
Studies have shown the default rate on 3% mortgages, when they were available in the past, was about the same as the default rate for individuals taking 5% down payment mortgages. To make sure the 3% mortgages don’t become a springboard for another housing bubble, individuals seeking to take out 3% mortgage loans will be required to take a buyer counseling program.
Conclusion
3% mortgages are designed to make the benefits of home ownership available for more middle class families. However, the 3% mortgage program may be the springboard for future default by homeowners who didn’t have the financial wherewithal to actually purchase their dream home. Hopefully this will not spur another foreclosure crisis in America.
Elliot S. Schlissel is a foreclosure lawyer who has helped hundreds of New Yorkers continue to live in their homes.
