Fannie Mae Loosens ARM Down Payment Rules

Fannie Mae is changing the requirement that borrowers pay a higher down payment to qualify for an adjustable-rate mortgage, announcing that it is bringing this type of financing more in line with that of fixed-rate mortgages.

Now, borrowers can make as little as a 5 percent down payment on a one-unit primary property using an ARM. Also among the changes is that borrowers need less equity in order to refinance into an ARM; they now need just 5 percent of equity to refinance. For purchasing a two-unit property, borrowers will need a 15 percent down payment for an ARM, or a 25 percent down payment for a property with three or four units.

An ARM is fixed for a set part of the mortgage term—often 5 or 7 years—and then adjusts depending on the current market rate. There are caps on how much it can adjust in one year. ARMs tend to have lower rates than fixed rates, making them an attractive option to borrowers who need to lower their initial costs or plan to own for a short time.

Source: “Fannie Mae Lowers Down Payment Requirements for ARMs,” OriginatorTimes.com (Aug. 26, 2017)

What Has Analysts Worried With FHA Loans?

The number of riskier mortgages is growing, which is increasing delinquencies—albeit slightly—and raising concerns about defaults, USA Today reports. Federal Housing Administration loans, which typically require down payments of 3 percent to 5 percent, are at the center of most of the concern.

FHA-backed loans are becoming more available through non-banker lenders, who have in some cases eased credit standards compared to banks.

The big concern to many economists is if home prices peak and then decrease, homeowners who made a down payment of just 5 percent and are less creditworthy may be more likely to default.

But non-bank lenders say the loosening of FHA standards is a welcome sign and not one to fear. Your comments?

Source: “Concerns About Riskier Mortgages Are Sprouting,” USA Today (March 12, 2017)

Home Buyers: ‘Do Not Fear’

Home shoppers no longer need to tremble all the way to the lenders’ office or have nightmares over being denied  a home loan – all the troubles that have been prominently spotlighted by many news reports in recent years. A new report confirms: It’s getting easier to get a mortgage – and as a bonus, borrowing costs are still low.

Over the past year and a half, the federal government and enterprises have taken several steps to open up the credit box, and the efforts may finally be showing signs of paying off.

Credit scores on closed loans in September dropped to the lowest level since Ellie Mae began collecting the data in August 2011, according to Ellie Mae’s latest Origination Insight Report. The average FICO score for closed loans has fallen throughout the year – from 731 in January to 723 in September.

Source: “Is the Credit Box Finally Showing Signs of Opening Up?” HousingWire (Oct. 21, 2015) andFreddie Mac

Why Buyers May Find Mortgages Easier to Get

Good news for potential home shoppers: A Mortgage Bankers Association index shows lender requirements regarding credit scores, down payments, and other key terms are finally loosening up. Some lenders are even expanding the types of mortgages they offer. These moves come after years of lenders tightening loan requirements.

The newly-released MBA index shows recent improvements in lending are mostly tied to the government’s efforts to ease regulations and improve affordability in the housing market. For example, mortgage financing giant Fannie Mae is now allowing purchases of conventional mortgages that have down payments as low as 3 percent; Freddie Mac is planning to do the same for mortgages closed on or after March 23.

Also, the Federal Housing Administration, which insures loans with down payments as low as 3.5 percent, reduced its upfront mortgage insurance premiums last month, which is expanding eligibility for home purchases to thousands of potential home shoppers.

Source: “Lenders Begin Easing Requirements to get a Mortgage,” The Los Angeles Times (Feb. 22, 2015)

Smaller Down Payments Lure More Buyers

Some home buyers are stepping off the sidelines as more lenders require less money up-front on a home purchase.

Recently, more borrowers are able to pay 3 percent or even less of a home’s purchase price to get a mortgage – a big change from when at least 20 percent down payments were practically the norm post-recession.

Additionally, some lenders are luring more home buyers back by waiving mortgage-related fees and even showing more acceptance of allowing down payments to be made by others, such as the borrower’s family members, The Wall Street Journal reports.

Still, borrowers must have good credit scores and a steady income to often qualify for these smaller down payment loans.

In two big moves in recent weeks, the Federal Housing Administration, which insures mortgages with down payments as low as 3.5 percent, announced it is lowering its annual mortgage-insurance premiums on new mortgages beginning Monday. The move is expected to save a typical first-time home buyer about $900 a year. What’s more, Freddie Mac and Fannie Mae recently lowered the minimum down payments they will accept on loans they back from 5 percent to 3 percent.

Source: “Down Payments Get Smaller,” The Wall Street Journal (Jan. 23, 2015) and “Loan Demand Posts Biggest Leap in 6 Years,” REALTOR® Magazine Daily News (Jan. 14, 2015)