On Wednesday March 13, 2013 Diana Olick reported for CNBC that lenders are approving more and more low down payment loans as we head into the critical spring market for home sales. In recent years 20% down was the norm on a home purchase loan. The article states that now Fannie Mae, the Federal National Mortgage Association, will buy loans with as little as 3% down, but these loans require private mortgage insurance(PMI). PMI was difficult to get when the housing market crash was at its worse, but as the housing market continues to improve this is no longer the case.
According to the article, this dynamic is resulting in a shift whereby the private mortgage insurers are insuring more of the low down payment loans rather than the government because the Federal Housing Administration, the government’s insurer, is getting more expensive.
Olick’s report indicates that with interest rates rising to the highest level in six months, banks are seeing fewer borrowers refinancing which gives them the capacity to extend more home purchase loans as more first time buyers enter the market. Given this and the fact that PMI is now easier to get on conventional low down payment loans, Olick reports that banks and lenders seem to be easing the rules or loosening up the purse strings.
However, the report indicates that federal regulators might set a minimum down payment for a loan to be considered a “qualified Mortgage”. A qualified mortgage is a home loan that meets certain standards set by the federal government. The qualified mortgage rule is designed to create safer loans by prohibiting or limiting certain high-risk products and features.
