Earlier this year, we saw the return of the 3% down payment – a major step towards the easing of lending standards nationwide after years of progressively tighter rules. While many of these guidelines were established in an effort to prevent another collapse, in many cases they are over cautious, preventing would-be homeowners who fell short of the qualifications from buying a home. Now, the standards are easing again – good news for both buyers and the real estate community in whole.
According to the latest credit availability index from the Mortgage Bankers Association, January saw improvements in all four of the reports loan categories. The changes reflected a positive response from lenders towards government efforts to improve affordability through easing regulations.
One major factor playing into this change was the return of conventional mortgage with a 3% down payment – a policy which Fannie Mae adopted earlier in the year but has been gaining traction with other lenders as well. Freddie Mac, for example, plans to begin a similar 3% down loan on mortgages which closed on or after March 23.
While Fannie and Freddie are two of the bigger players in lending, the 3% down program doesn’t end here. According to index, nearly 40% of investors have already adopted a similar 3% down policy.
The Federal Housing Administration has also played a hand in improving affordability with their reduction of upfront mortgage insurance premiums. It’s estimated that this change could move thousands of potential buyers into eligibility, as virtually every lender working with the FHA program has reduced these costs.
With all the recent changes, many lenders are gaining confidence in lending to a wider range of borrowers, many of whom are below previously set limitations such as credit scores and cash for a large down payment. Wells Fargo, for example, previously had a minimum FICO score of 660, but now no longer has a hard limit set. Instead, the lender is willing to give you a chance if Fannie Mae or Freddie Mac’s automated underwriting systems accepts your application.
Do you think these changing policies will be enough to ease affordability for the many would-be owners who are currently struggling? What are your thoughts?