Fannie Mae to increase minimum down payment in November

Fannie Mae is scheduled to update their automated underwriting system (aus) Desktop Underwriter (DU) to DU Version 9.1 on November 16, 2013.  In their release notes from August 20, 2013, Fannie Mae reveals that for they will increase the minimum down payment from 3% to 5% for Fannie Mae conventional loans.

From the notes:

DU Version 9.1 will reflect lower maximum LTV/CLTV/HCLTV ratios for standard and MyCommunityMortgage (MCM) fixed rate transactions secured by a 1-unit primary residence. Those transactions are subject to a maximum LTV/CLTV/HCLTV [loan to value] ratio of 95% (instead of 97%). DU will continue to allow CLTV ratios of 105% when the subordinate financing is a Community Seconds mortgage.

Fannie Mae notes that the mortgages that are  part of a state Housing Finance Agency (HFA) are subject to different loan to values. This exemption will most likely apply to mortgages such as Washington State Housing Finance Commission’s Home Advantage Mortgage which offers minimum down payment with the help of various down payment assistance programs.

I’m not certain if this change will impact Fannie Mae HomePath mortgage which currently offers a minimum down payment of 3% on owner occupied homes. I’ll be sure to provide an update once I have more information.

If you are a home buyer considering conventional financing with 3% down payment and you are not using Home Advantage for your mortgage, you have just a couple months before this option is no longer available. FHA currently offers a minimum down payment of 3.5%, however it comes with more expensive upfront and monthly mortgage insurance than 3% down conventional financing. USDA offers zero down financing, however the property must be in a designated rural area.

I’m kind of surprised to see Fannie Mae increase the minimum down payment when our housing is just beginning to take off. I would rather see a home buyer have the 2% difference in down payment (from 3 to 5%) in their savings as reserves rather than in equity in a home. If 3% down payment is that much more of a risk to Fannie Mae than 5% down, why not increase the amount of reserves required at closing?

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If I can help you with your mortgage needs for homes located anywhere in Washington state, please contact me. I’m happy to provide a written rate quote for any of the programs referenced in this article.