Fannie Mae, Freddie Mac offer home loans for 3% down

Fannie Mae and Freddie Mac announced new products for homebuyers on a budget.

For just a 3 percent down payment, certain consumers can now get a loan from both government-sponsored lenders for a home purchase or refinance transaction, which means the agency will finance up to 97 percent loan-to-value.

Fannie Mae’s Home Ready program is targeted at borrowers with low-to-moderate income levels that have limited cash to make a down payment. Qualified applicants can have a FICO score as low as 620 and can be either first-time or repeat homebuyers. Payments from rental or boarder properties can be considered as an income source and Home Ready also allows parents to sign on as co-borrowers, even if they won’t be living at the residence, in addition to other non-occupants.

Home Ready loans are subject to certain income limits in specific areas, unless one of the buyers is a first-time homebuyer.

Freddie Mac’s Home Possible mortgages are also available for as little as 3 percent to 5 percent down, targeting homebuyers in high-cost and underserved communities. Home Possible allows down payments from a variety of sources and no income limits for underserved areas. Applicants do not need to be first-time homebuyers and can have a FICO score as low as 640. Unlike Home Ready, Home Possible requires no minimum borrower contribution for one- to four-unit homes.

These new products are designed to compete with the low-down-payment options offered by the Federal Housing Administration (FHA), which offers loans for as little as 3.5 percent down for those with a credit score of at least 580.

Housing prices are on the rise across the country, which has put a strain on first-time buyers in particular. The National Association of Realtors and Freddie Mac estimate that median price growth will accelerate by 3.5% in 2018, and in some cases will continue to rise faster than income gains over the coming years.

Constraining the housing market right now is a mix of factors, including a lack of inventory, a shortage of construction workers, rising costs of raw materials, and increased regulatory burdens for developers.

Not everyone thinks more subsidies are the solution to the current housing crisis.

“What holds back housing in this country is not the lack of funding, it’s all the local regulations that make it difficult to get permissions to build houses in an efficient and cheap way,” Steve Forbes, chairman and editor-in-chief of Forbes Media, told FOX Business’ Stuart Varney on “Varney & Co.”