By Wendell Cox, Creative Credit Solutions, Member of CCAR’s REALTOR®/Lender Committee
What is the lowest percentage of down payment possible on a conventional loan?
If you responded "20%" - you are with the majority. You are also incorrect.
The lowest down payment on a conventional loan is 3% with Fannie Mae's HomeReady Conventional Purchase loan product. The HomeReady loan not only requires a lower down payment than FHA's 3.5%, it also has lower mortgage insurance rates than the traditional 5% to 15% down payment loan options.
HomeReady has reduced the income limits for Collin County and the overall DFW Metroplex from the previous 100% of the Average Median Income to 80%, despite increasing income limits in areas across the country.
This reduction took place on June 5, 2019 when Fannie Mae adjusted its DU (Desktop Underwriter) automated underwriting system to reflect the lower income limit* of $64,240--80% of the Average Median Income of $80,300.
Previously, the income limit* had been around $77,420--100% of the Average Median Income at the time for the Metroplex and Collin County. So, while the AMI went up over all at 100%, Fannie Mae is now choosing to use a lower percentage of the AMI.
“To better align with our housing goals, we are changing the income limit requirements for all HomeReady loans to not exceed 80% AMI for the property’s location (This includes properties in low-income census tracts.)” - Fannie Mae June 2019
A more vibrant economy has pushed the AMI numbers up, which in turn has caused Fannie Mae to segment the HomeReady loan product for “very low-, low-, and moderate-income creditworthy borrowers and to help us fulfill our affordable housing mission and regulatory housing goals.”
Fannie Mae provides a very user-friendly tool to find the HomeReady Income limits per address at: https://homeready-eligibility.fanniemae.com/homeready
As previously mentioned, there is a census tract used to determine eligibility as well. You can find areas that have the 80% AMI limit, as well as areas that do not have income limits at: www.fanniemae.com/content/eligibility_information/homeready-income-eligibility-lookup.xlsx
We highlight Fannie Mae because it is the most widely used investor for mortgages. However, Freddie Mac is also following this same new calculation for AMI income limits.
For more information on low down payment products and products available to help your low to moderate income buyers, please contact CCAR's REALTOR®/Lender Committee at realtorlender@ccar.net.
*These income limits apply for total household income.