It’s back to three percent as the required baseline for house purchase down payments. If you are selling a house that is likely to attract first-time buyers, it’s important to ensure that offers comply with the latest rules, such as the newly reinforced three-percent threshold, so you don’t waste time with unqualified buyers.
In the past few years, a few lenders got creative, offering first-time buyers mortgages with just one percent down, topped off with an two percent from the lender. Designed primarily for low-income buyers and those buying in economically challenged neighborhoods, the one-percent down mortgages trimmed risk too thin for Freddie Mac, the ‘bank to the banks’ for mortgage lending.
Freddie Mac gets to set the rules for loans it will eventually buy and own, so its requirement that mortgage lenders require a plain-and-simple three percent down payment creates a consistent baseline for all lenders – traditional and online – that intend to pass through mortgages they write to Freddie Mac.
As this change illustrates, rules for mortgages shift often, especially in response to lenders’ marketing programs. That’s why it is more important than ever to fully vet a potential buyer: someone could claim to be qualified to buy your house based on recently outdated information.
Here are three questions to ask buyers or their agents so you don’t waste time and market momentum with buyers who can’t actually afford your house:
- Does the buyer have at least three percent of the expected purchase price, in hand, as a down payment?
- Can the buyer verify to the mortgage lender that the down payment is not a loan in disguise, such as a loan from a parent masquerading as a gift? (The lender may expect a letter from the gift-giver verifying that the gift is a genuine gift.)
- Is the buyer’s credit score high enough and current debt load low enough to provide enough reources for the ancillary fees related to closing such as the inspection and closing costs?
Understanding the resources that a buyer has is a key step in winnowing the lookers from the serious house hunters. The more you know about the current lending environment, the stronger your hand.