FHA Offers 3% Down-Payment Loans for First-Time Home Buyers

Starting next month, Fannie Mae and Freddie Mac — the lenders of the Federal Housing Authority — will offer home buyers mortgages with just a 3% down payment through its Home Possible Advantage loan program. On a $300,000 home, that means just $9,000 up front, plus closing costs.

Is this a good idea for Portland home buyers? Most low-down-payment loans have a catch like variable rates or private mortgage insurance for life, but these Home Possible loans are fixed-rate mortgages. They do require mortgage insurance to be paid on top of the regular payment, but only until 20% (a typical home down payment) has been paid in equity on the home.

For those who qualify, this is a great way to get into a home while mortgage rates are at historic lows. Only a small percentage of borrowers will qualify, however, because credit requirements are tighter than they used to be. Borrowers must have a credit score of at least 680 to qualify for the new 3%-down loans. On the other hand, mortgage lenders are still more interested in your ability to may mortgage payments going forward, making some credit dings less of an issue.

Because the down payment is typically such a hurdle for those who are buying their first home, these low-down-payment loans are a great way for the FHA to convince first-time home buyers to take the leap to home ownership. In fact, the loans are only available to first-time homeowners, or those who have not owned a home in at least three years. On the other hand, it can be a drag to only put 3% equity into your home starting out. You have more to pay off down the road, and if you ever need to borrow money against your home, there won’t be much there to start with.

But who knows how long these low mortgage rates will last? Freddie Mac said Thursday the nationwide average for a 30-year mortgage was 3.76 percent. Mortgage rates have been creeping up gradually since last spring, but according to the FHA’s Christina Boyle, “in the 1980s, a 30-year fixed-rate mortgage averaged 12.7 percent interest (and even spiked to a whopping 18.5 percent at one point). Even as recently as November 2008, rates topped 6 percent. So in comparison, rates today remain very affordable.”

The bottom line is, home ownership is an option for more people than it ever has been before, and it’s a great time to invest in a Portland home. Your lender can help you figure out the mortgage that is right for you. Your Portland real estate agent can help you find a home that is affordable — you might not pay much more than you would renting! It doesn’t hurt to find out.