Reduced Down Payment Conventional Loans may require Compensating Factors

Mel_WattMel Watt, Director of the FHFA, has released his prepared remarks for the National Association of Realtors Conference. In his remarks, he addresses the lower down payment options that should be available soon with conforming mortgages and that they will require compensating factors.

” …I also announced recently that the Enterprises are working to develop sensible and responsible guidelines for mortgages with loan-to-value ratios between 95 and 97 percent.  As I said earlier, there are creditworthy borrowers in today’s market who have the income to afford monthly mortgage payments but do not have the money to make a large down payment and pay closing costs.  Purchase guidelines that allow for 3 percent down payments will provide an opportunity for access to credit for some of these borrowers.

To appropriately manage the Enterprises’ risk, the guidelines for these loans will be targeted in their scope and will include standards that support safety and soundness.  We know that the size of a down payment – by itself – is not the most reliable indicator of whether a borrower will repay a loan.  As a result, the guidelines will require that borrowers have “compensating factors” and risk mitigants – such as housing counseling, stronger credit histories, or lower debt-to-income ratios – in order to make the mortgage eligible for purchase by Fannie Mae or Freddie Mac.  This approach builds on the Enterprises’ experience using compensating factors and risk mitigants….”

So bottom line, not everyone will have access to new reduced down payment conforming mortgages. It will be interesting to see the credit requirements.

However, you don’t have to wait for Fannie and Freddie to roll out the reduced down payment guidelines. Home buyers who meet income limits ($97,000 or less) can now qualify for a conforming mortgage using the Home Advantage Mortgage, which does require a WSHFC approved home buyer class. This is a special program by the Washington State Housing Finance Commission and, as a WSHFC trained mortgage originator, I’m pleased to be able to offer this program to Washington home buyers. Home Advantage is not limited to first time home buyers and down payment assistance is available.

If you’re considering buying or refinancing a home located anywhere in Washington state, I’m happy  to help you! Click here if I can provide you with a mortgage rate quote.



  1. […] does not have income limits and does offer lower down payments and, believe it or not, conventional mortgages now offer slightly lower down payments than FHA. Borrowers who have served our country may qualify for a VA loan with no or greatly reduced down […]

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