Mortgages Become Easier for Some First-Time Buyers

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B07M3C Woman standing by a for sale sign outside a family house, fingers crossed
By Christine DiGangi

Saving up to buy a home might not be as much of a challenge as it used to be, now that the Federal Housing Finance Agency will allow some first-time homebuyers to make down payments of as little as 3 percent.

The change went into effect Saturday with the goal of making homeownership more accessible to Americans than it has been in a tight post-recession mortgage market. These low-down-payment loans apply to 30-year, fixed-rate mortgages guaranteed by Fannie Mae and Freddie Mac. The agency regulates Fannie and Freddie, which guarantee the majority of U.S. mortgages.

What does this mean for you? Well, if you want to buy a home but don't have a ton of cash on hand for a down payment and closing costs, you might be able to qualify for an affordable home loan. Keep in mind lenders will require you to pay private mortgage insurance if you pay less than 20 percent upfront, a cost homebuyers often overlook when determining how much they can pay -- you can figure out how much house you can afford using this free calculator and watch how your monthly payments change with different down payments.

How to Lower Your Payments

Even with a low-down-payment mortgage, you can find ways to make the monthly payments more affordable. One of the first things you'll want to look at before applying for a home loan is your credit score. Your credit standing not only affects the mortgage rate you qualify for, it also impacts how much you must pay in PMI. You can also get rid of PMI after you've built a certain amount of equity in your home, among other requirements, but it's on you to go through the process of removing PMI from your loan.

With the new directive from the FHFA, buying your first home may be more attainable, but the decision requires just as much careful thought as it would if you needed to put down 20 percent of the home's value to get a mortgage. Consider the overall impact on your life of buying a home, and make sure your credit is in good shape before applying for a mortgage. You're entitled to free annual credit reports from each of the major credit reporting agencies, and you can get two of your credit scores for free every 30 days on
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