Massachusetts Home Buyer Guide

The real estate media, as well as many real estate bloggers, have been buzzing about the announcement that Fannie Mae and Freddie Mac will now offer first-time home buyers conventional mortgages with only a 3 percent down payment, but in Massachusetts home buyers already have two options for low down payment mortgages.

Both MassHousing Mortgages and the Massachusetts Housing Partnership (MHP) One Mortgage offer home buyers a 3 percent down payment loan option, so which Massachusetts home buyers benefit from the new Fannie Mae first-time home buyer program?

Both MassHousing and MHP have income limits, and some home buyers who do not have enough money saved for a 5 percent down payment have incomes that exceed the limits. Unless those high-income home buyers were eligible for a Veterans Administration (VA) loan, until now their only other low down payment option was the costly 3.5 percent down payment FHA loan.

The Fannie Mae program started December 13, 2014, and the program will require private mortgage insurance (PMI) and fixed-rate mortgages. At least one borrower will need to be a first-time home buyer, which is defined as someone who has not owned a home in the last three years. Borrowers also would have to participate in a home buyer education course. The Fannie Mae program does not have any income limits for borrowers, the loan limit is $417,000.00 

Critics of the new Fannie Mae program argue that such programs were responsible for the last housing meltdown and the subsequent foreclosure crisis; however, 3 percent down mortgages are a long way from the interest-only and no-documentation mortgages that were all too common. Fannie Mae claimed when it announced the new program that guidelines are in place to ensure that only qualified borrowers obtain these loans.

Freddie Mac plans to start its 3 percent down payment program, called Home Possible Advantage, in March. Home Possible Advantage will have its own underwriting guidelines, including income limits for borrowers.   

The United States Government took over Fannie Mae and Freddie Mac in September 2008, after the stock market meltdown intensified the losses caused by risky mortgages and threatened to shut down the entire U.S. housing sector, according to Philly.com. Combined, Fannie and Freddie received taxpayer aid totaling $187 billion, all of which has since been repaid as the mortgage giants have returned to profitability.

The two companies don't directly make loans to borrowers. They buy mortgages from lenders, package them as securities, guarantee them against default and sell them to investors. Buying these loans helps make more loans available because lenders then have the funds to lend to other home buyers. Fannie Mae and Freddie Mac own or guarantee about half of all U.S. mortgages, worth about $5 trillion.

The most important decision regarding financing a home buyer can make is to meet with and take the time to learn about the various loan options from an experienced, competent mortgage professional.  Home buyers typically have several potential loan programs to consider. A personal consultation with a buyer agent is a good place for a home buyer to start the home-buying process.