Home buyers purchasing a home with a conventional loan want to know that the down payment requirements are for a Fannie Mae loan in 2018. Below is more information about what the minimum down-payment rules will be for most borrowers qualifying for a Fannie Mae home loan this year.
A conventional home loan is not insured or guaranteed by the US government. Conventional loans are different than VA and FHA loans, which are backed by the government. A conventional home loan is made by a private mortgage company. When they do require mortgage insurance – when your down payment is less than 20% – that insurance is issued from a private company and not from the government.
The clear majority of conventional loans stick to the guidelines issued by Fannie Mae or Freddie Mac. These are two government sponsored companies that buy loans from private lenders. Most mortgage lenders like to sell their loans to Fannie or Freddie. It lowers their long-term risk and increases their ability to make new loans. But Fannie and Freddie do have certain standards for the loans they will buy. Down payment is one of the critical criteria.
Fannie and Freddie will purchase loans with LTVs as high as 97%, which means a 3% down payment. This is where the bar is set for 2018. So, many conventional mortgage lenders will offer loans with 3% down payments, but not all of them. You may have to shop around to find a mortgage company that offers a 3% down payment for someone with your credit score and debt to income ratio.
Fannie Mae loan guidelines states that it currently purchases loans from private lenders with 3% down payments because it wants to increase access to credit for people who have acceptable credit scores. Allowing people to make 3% down payments to buy a home expands the opportunity of home-ownership to millions of people.
There are some exceptions to the 3% down payment rule for Fannie Mae loans. Some lenders want to keep the mortgages they issue in house rather than selling them. This may allow these lenders to have more flexibility on down payments. Some might want higher down payments and some less. But most conventional lenders sell their loans to Fannie Mae or Freddie Mac, so a 3% down payment is typical.
But this does not always mean you will qualify for the 3% down payment. Depending upon the loan, the conventional lender may require you to put down more money. For instance, if you want a jumbo loan, these exceed the conforming limits of Fannie Mae and Freddie Mac. This means a higher down payment is needed.
Lower Down-Payment Requirements than FHA Loans?
FHA loans are popular because they are easy to qualify for; people with credit scores as low as 500 may qualify, and people with a 580-credit score can qualify for a 3.5% down payment. But many people do not know that Fannie and Freddie conforming loans often offer an even lower down payment of 3%.
Conventional loans are harder to qualify for, with a 640-credit score typically required. Conventional loans are typically the best option for people with a credit score at least that high. But if you have a lower score, and/or have past credit problems including a bankruptcy or foreclosure, you may want to go with an FHA loan. See 2018 FHA loan requirements to determine if this type of mortgage is a better fit for your credentials.
Fannie Mae Allows Gift Money for Down Payments
If you want a Fannie Mae conforming loan in 2018 and do not have enough money for a 3% down payment, you may still have some good options. Many mortgage programs today will allow you to get down payment funds as a gift. This is true for conventional and FHA loans. By leveraging the Fannie Mae gift-fund rules, many home buyers are able to qualify for a $0-down mortgage. (Gift proceeds can cover the down-payment requirements if borrower is eligible.)
You typically can get the gift funds from a family member, employer or close friend. If you are going to use a gift for a down payment, you should talk to your loan officer about the requirements. Generally, the gift must be carefully documented with a letter from the party who is giving the funds. There must be a clear paper trail that shows how the money was given to you. Bank statements typically are required. Also, the money cannot be a loan; it must be a gift. If you have VA eligibility and you are looking for 100% financing without using gift funds, consider the VA program. (see 2018 VA loan requirements)
What You Need to Remember About 2018 Fannie Mae Down-Payment Requirements
In 2018, it is easier than it has been for 10 years to get a Fannie Mae conventional loan. Credit standards and DTI standards are more flexible than any time since the financial crash of 2008 and 2009. With a 3% down payment for a Fannie Mae loan, it is easier to get into a home and to stop paying rent. With these low-down payments, there really is no reason that many people should continue to throw money away on rent. Buy a home now with a Fannie Mae loan and 3% down payment; it is likely mortgage interest rates will rise soon!
References: Minimum Down Payments for Conventional Loans. (2017). Retrieved from http://www.qualifiedmortgage.org/minimum-down-payment-conventional/