Recently, Fannie Mae and Freddie Mac announced plans to begin backing home loans with down payments as low as three percent. This move came just days after the mortgage giants implemented less rigid lending standards in order to give Main Street citizens with less-than-perfect credit a better chance at homeownership. According to The Association of Mortgage Professionals (NAMB), it seems the lending industry is opening its arms to the millennial generation, too many of whom have yet to own their first home.
The new programs – Freddie Mac’s Home Possible Advantage and Fannie Mae’s as yet unnamed – are tailored to first-time homebuyers and low- and moderate-income individuals who finance a fixed-rate mortgage. In these cases, they may be approved for a loan without the capital required to make the traditional five percent down payment. In exchange for the lower down payment, the applicants must be able to demonstrate their ability to repay their loan, secure mortgage insurance, and attend pre-purchase counseling.
According to Don Frommeyer, CEO of NAMB, the lower down payment requirements should help drive millennials into their first homes.
“I applauded Fannie and Freddie for loosening the lending standards this month,” says Frommeyer. “This is exactly what our industry needed to propel millennials into homeownership for the first time and to keep Main Street growing and thriving.”
Frommeyer is a big fan of the required loan counseling, as it extends well beyond the scope of educating first-time homeowners what it means to be responsible for a mortgage. Those who attend can expect to learn, among other things, the financial impact of variables such as property taxes, insurance, and upkeep associated with homeownership.
“When you purchase your first home, sure it’s important to understand the terms and your ability to make the monthly payments,” says Frommeyer. “But there are countless factors that young people forget to consider. You need to buy a lawn mower, and bags, and a snow shovel, and a hose. You’re no longer responsible for just the inside of an apartment. And this loan counseling prepares people to look at the bigger picture. I’ve seen people walk away from these seminars with a whole new outlook. It’s really good stuff.”
For more information, visit www.namb.org.