Fannie Mae Lowers Down Payment Standard: great news for Los Angeles County Real Estate?

For many, every little percent makes the world of difference in getting approved for a mortgage. In California, with Los Angeles County being considered a declining market, many borrowers were hit with a declining market down payment standard that said "if the maximum allowable financing is 95%, we're automatically reducing that allowable limit by 5% (making it 90%) due to a declining market." This was devastating for many prospective homeowners who had already saved up a set amount of money in hopes of getting approved on a new home loan.

But as of June 1, 2008, Fannie Mae is making an effort at a solution for them...

"Fannie Mae, backing down from pressure from homeowner and real estate groups, will allow buyers in markets with falling home prices to purchase houses with 3 percent down payments, potentially increasing the company's risk...

Fannie Mae and Freddie Mac, created by Congress to increase mortgage financing and provide market stability, fulfill their mission by buying mortgages from lenders so banks have more cash to make new loans. The companies, adjusting to a rise in mortgage defaults, tightened loan standards to limit losses, introducing new fees to buy riskier loans and raising required credit scores...

The stricter down payment policy, adopted in December, will end June 1, Washington-based Fannie Mae said in a statement. Potential homeowners approved by the company's computer program will be able to borrow up to 97 percent of the value of the property, the company said. Other loans will be accepted with loan-to-value ratios of up to 95 percent. Previously, borrowers in areas such as parts of California, Nevada and Florida were required to put down 5 percent more equity than elsewhere." [Source: Bloomberg]

Are you thinking of buying a home in Los Angeles County and wondering how this might affect or help you if at all?

The prospect of a lower down payment requirement is enticing but the threat of costly PMI requirements is still present and raises the issue of affordability. Putting less down means you might have to incur mortgage insurance. Often times lenders would advise a 1st and 2nd combo and poof, problem solved. But in today's retracting secondary mortgage market this solution has become difficult to obtain.

So what should you do? Sit down with your Real Estate Agent and Mortgage Professional and go through the paperwork while asking questions. Sounds tedious and burdensome but the time spent doing so will yield you the best results.

Contact me here or call me directly at (323) 810-2175 should you have any questions. And be sure to check for Daily Mortage Updates here on the blog.

Comments

[Carla Alvarez]

I've been out of the industry for awhile and I had no idea that FHA had raised their downpayment requirement.

It's good to hear that they have lowered it again.