The beginning of December brought first-time homebuyers an early Christmas present, with the U.S. government unveiling its plan to offer mortgages with a down-payment of a mere 3% of purchase price.

Recently chronicled in the New York Times, this development is paving the path for widespread mortgage availability for those with a strong credit history but not enough cash for a 20% down payment.

Federal housing officials stated that they have safeguarded against the risk of higher defaults among home buyers without any equity cushion by including underwriting restrictions, requirement of private mortgage insurance, and counseling.

Both Fannie Mae and Freddie Mac will be offering the new mortgage programs. They both require the loans to be fixed rate, with some differing features.

Fannie Mae's My Community Mortgage Program

This program, which has already begun at the start of this month, is eligible for first-time buyers with a minimum credit score of 620.

These borrowers will be eligible to refinance with a limited amount of money that can be taken out.

Freddie Mac's Home Possible Advantage Mortgages

This program will begin in March of 2015, and will be available both to first-time buyers and other qualified borrowers. Credit scores are just one of several determining factors which determine a home buyer's eligibility.

Refinancing will also be available, but with no cash-out option.

Projections for the 2015 Housing Market

The mortgage insurance industry en masse has deemed this move a positive one. An increase in business is expected, while providing an investment option for families with low incomes.

However, it seems that even supporters are questioning the magnitude of these new programs, expecting modest market results rather than having a strong influence. Chief executive and publisher of the newsletter Inside Mortgage Finance, Guy D. Cecala, explains further:

“It’s another tool in helping the housing market, but not a huge one,” Mr. Cecala said.

Since the borrowers must still be credit worthy, he explained, “this is not pushing the envelope.”

Chief economist Diane Swonk of Chicago's Mesirow Financial seconds these notions, expressing her doubt that buyers will be lured by these new initiatives, as lack of demand and tight mortgage standards are perhaps even bigger hurdles than the actual down payment.

While there may in fact be only a limited effect on the market, Senior Economist at Moody's Analytics, Andres Carbacho-Burgos, nonetheless views the move as a positive one, stating, "Anything that can be done to restart the first-time home buyer market is a good thing.”

Only time will show us what the 2015 market will bring, but hopefully this option will bring the market closer to first-time homebuyers who had previously believed they couldn't afford a home.

Wondering what this means for you? Looking to buy your first home? Don't hesitate to send us an email or give us a call! We'd be happy to help you.