In the aftermath of the housing market crash in 2008, many potential first-time buyers have found themselves sidelined by rigid lending requirements and lack of capital.
After the bubble burst, big mortgage companies locked down their lending regulations in order to reduce the risk of default. Although the shareholders of these companies surely appreciated this strategy, this new era of conservative lending has been tough on people looking to buy their first home. With less capital available for down payments and shorter credit histories than the institutional investors who started snapping up foreclosed homes, it became very difficult for a first-time buyer to get qualified for a loan.
Now that the housing market seems to have stabilized, many of those investors are ready to unload their properties in order to realize their investment. More inventory is becoming available for home buyers, but a tough job market and astronomical student loans means that many of the Millennials who are finally ready to buy a home have found themselves unable to meet the down payment demands of the lenders.
Enter Fannie Mae’s new My Community Mortgage program: first-time buyers or buyers who have not owned in the past three years may now be eligible for a 97% LTV option, meaning they would only have to pay 3% down. The lending regulations are still strict – eligibility requirements still includes underwriting, income documentation, and risk management standards, and the loans require Private Mortgage Insurance (PMI) that can add an additional 1% of your loan to your monthly payments.
Although Fannie Mae is still taking precautionary measures to make sure that they are lending responsibly, Vice President Andrew Bon Salle says that their “goal is to help additional qualified borrowers gain access to mortgages,” which should benefit the entire industry. When first-time buyers are able to buy “starter homes,” it allows the sellers to move up, creating a healthier housing market. Fannie Mae is also offering some new tools to their customers and clarifying their policies to help lenders better evaluate the risks of these loans.