Guide to 3 Percent Down Mortgages: How They Work and What You Need to Know
Introduction
With mortgage interest rates skyrocketing in 2021, buying a home has become a costly endeavor. Saving for a down payment can also be challenging. However, the good news is that you don’t always need to bring the traditional 20 percent down payment to the table. There are loan programs that only require a 3 percent cash down payment, making the path to homeownership smoother. In this guide, we’ll explore these 3 percent down mortgages, how they work, and what you need to know.
1. Conventional 97
The Conventional 97 mortgage program, backed by Fannie Mae, allows you to put only 3 percent down and finance 97 percent of the home’s price. To qualify for this mortgage, you must be a first-time homebuyer or not have owned a home in the past three years.
2. Fannie Mae’s HomeReady Program
Fannie Mae’s HomeReady program offers financing for a variety of properties, including single-family homes, residential buildings with up to four units, and condos. It requires a 3 percent down payment and certain eligibility criteria must be met.
3. Freddie Mac’s HomePossible Program
Similar to Fannie Mae’s HomeReady program, Freddie Mac’s HomePossible program also offers a 3 percent down payment option. One distinction is that it allows non-occupying co-borrowers to contribute funds to the down payment.
4. HomeOne
Freddie Mac’s HomeOne program is designed for applicants with limited down payment funds. It is available to first-time homebuyers or those who haven’t owned a home in the last three years.
Other Low-Down Payment Options
In addition to the Fannie Mae and Freddie Mac programs, there are other low-down payment options such as FHA loans, USDA loans, and VA loans. These programs cater to specific types of borrowers and have different requirements.
Next Steps to Get a Mortgage
If you’re considering a 3 percent down mortgage, start by saving for your down payment. Consider using high-yield savings accounts or money market accounts and set up automatic deposits to accelerate your savings. When you’re ready to start house hunting, research mortgage lenders to find the best loan options and down payment assistance programs.