The past few years have been tough for prospective homebuyers, with many finding it almost impossible to qualify for mortgages. However, several new programs have come into effect, helping creditworthy borrowers get on the property ladder.
Over recent months, things have begun to ease. For example, some new terms now include a down payment of between 1 and 3 percent. These come without monthly home loan insurance charges, which makes taking out a mortgage more affordable. Debt-to-income (DTI) levels have also been stretched towards 50 percent while definitions of what qualifies as income have been loosened. Underwriting has become more flexible, accepting that there are often multiple earners in a household who can contribute to expenses.
The changes have come from major lenders like Freddie Mac and Fannie Mae. These are reaching out to creditworthy lenders including first-time buyers, millennials, and immigrant families. It is vital to remember, though, that being creditworthy remains essential. Those with subprime credit histories are unlikely to be accepted for home loans, even under these new terms.
Alterra Home Loans and New American Funding, which specialize in lending to modern income and minority first-time homebuyers, have recently partnered with Freddie Mac to launch a pilot program known as "Your Path". A down payment of 3 percent is required, with income from second jobs taken into account. Earnings from non-borrower residents can be used to stretch the DTI ratio to between 45 and 50 percent.
Private mortgage lender Quicken Loans has also worked with Freddie Mac to launch a new offer. This mortgage requires a down payment of only 1%, as opposed to the traditional 20 percent. The offer fits into Freddie Mac's Home Possible Advantage program, which requires a 3 percent down payment. Quicken Loans is offering to supply homebuyers a grant for 2 percent of the down payment, leaving just 1 percent for the homebuyer to put up. Learn more in our earlier article about the 1% down mortgage.