Thursday, September 23, 2010

Changes for Conventional Loans

Fannie Mae (the ruler of conventional loans) is making some changes to their underwriting guidelines that will affect many real estate deals. Here are the two changes that will get the most press:
  • The minimum down payment for one-unit, primary residence loans is being lowered to 3%. This does not apply to cash-out refinances. It is incredibly important to note that mortgage insurance companies will not insure these loans at the moment, with the exception of loans for first-time homebuyers with very good credit, so do NOT assume that 3% down is the new standard. FHA loans (3.5% down) are still, at the moment, the lowest down payment option for most borrowers.
  • The down payment can now be paid by a relative of the borrower, as long as it is a gift. Again, private mortgage insurance companies are NOT insuring these loans at the moment. FHA loans allow gifts from relatives and FHA will insure the loans, the same as always.
  • These changes affect loan applications dated December 11, 2010 and later.

By the time these changes take effect, the mortgage insurance companies may insure the loans, but that is anyone's guess.

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