Minneapolis, MN: Fannie Mae and Freddie Mac have recently announced they are bringing back 3% down payment options.
Currently, most conventional conforming loans require a minimum down payment of 5%, while FHA Loans still allows for just a 3.50% down payment.
FHA VS CONFORMING CONVENTIONAL Loans
FHA used to be the low down payment champion, but changes to the program made after the housing market meltdown have really taken a lot of steam out of the program. The two biggest changes being the huge increase in the cost of FHA mortgage insurance, and that with a small down payment, the homeowner would have FHA mortgage insurance for the life of the loan!
If you have good credit, and could come up with a little more down payment, a conforming conventional loan would be much better.
CONFORMING CONVENTIONAL NOT ALWAYS BETTER
There are many differences between the two programs.
FHA loans are more liberal in terms of lower credit scores, and weaker borrower profiles. It also has a shorter waiting period after major negative events, like a foreclosure or bankruptcy. FHA interest rates are pretty much the same for everyone. But you pay for this with the high cost of mortgage insurance.
Conventional loans are almost always better if you have good credit scores, but can be nearly as costly for those with weaker credit. Conventional mortgage interest rates and mortgage insurance costs both climb significantly as your credit scores go down.
NEW 3% DOWN PAYMENT GUIDELINES
Understand, Fannie Mae and Freddie Mac DO NOT DO LOANS. They buy loans from lenders after the fact. Therefore lenders can, and very often do, add additional rules and restrictions to the guidelines of what Fannie and Freddie say they will buy. Always check with your mortgage lender for your specific qualifications:
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