3% Down Payment Conventional Mortgages for First Time Home Buyers

By Sari R. Updated on 7/20/2017

Fannie Mae announced that they would put a 97% LTV option into effect for first time home buyers. Freddie Mac will have a similar option as part of a new program called Home Possible Advantage. Instead of having a 5% down payment requirement, first time home buyers are only required to put forth a 3% down payment for a conventional mortgage. 

This allows first time home buyers who don’t have the necessary funds to purchase a home the opportunity to become homeowners with a lower amount of cash. 

3% down payment mortgage with Fannie Mae

• This option will be available effective December 13, 2014.
• Fixed-rate mortgages only; no adjustable-rate loans (ARMs).
• First time home buyer education courses are required.
• Jumbo or high balance loans are ineligible. 
• Cash-out refinancing allowed on existing Fannie loans. 

3% down payment Home Possible mortgage with Freddie Mac

• This option will be available effective March 23, 2015.
• Fixed-rate mortgages only; no adjustable-rate loans (ARMs).
• Properties must be owner-occupied. 
• No cash-out refinancing allowed.

What are the 3% down conventional loan requirements?

The Fannie Mae loans with the new 3% down payment requirements, and the cash-out refinance option for existing Fannie loans will still have the same requirements in terms of risk management, income documentation, and underwriting. They will also require private mortgage insurance.

The Freddie Mac Home Possible loans with manual underwriting, however, will have 660 minimum credit score requirements and 680 for a refinance. 

Refinancing homeowners will not have a cashout option with Home Possible. Additionally, income caps will apply. First time home buyers will also need to take part in a borrower education program such as Freddie Mac’s CreditSmart to qualify for the Home Possible Advantage program.

How can I apply for a low down payment loan with Fannie Mae?

First time home buyers can purchase homes using either the Fannie Mae standard offering or by enrolling in the MyCommunityMortgage product. 

Homeowners who want to refinance a Fannie Mae mortgage but can’t qualify under the Home Affordable Refinance Program will now be allowed to refinance their loan with a 97% LTV level with a limited cash-out refinance. 

Is it difficult to qualify with Fannie Mae?

As part of this new announcement, Fannie Mae is working with lenders to help them understand which loans are risky versus which loans are not. This will allow credit-worthy first time home buyers to have greater access to home loans and funds and to receive a low down payment mortgage.  

Lenders were given a tool called Collateral Underwriter that is used for appraisal by Fannie Mae to help the lender determine whether a particular loan should be given.

What should I do next?

If you’re interested in qualifying for a 3% down conventional mortgage backed by Fannie Mae or Freddie Mac, contact a trusted, licensed lender today for more information. 

Be sure to prepare yourself with the documentation necessary for loan pre-approval, including your two most recent pay stubs, tax returns for the last two years, identification, and most recent bank statements.