An Introduction to 3% Down Conventional Home Mortgages

By Henry Ochoa

For the past few months, private banks have been introducing 3% down conventional mortgage packages.

These 3% down mortgages are a way to get first-time homebuyers into a home with a low down payment, as opposed to having to pay the typical 5-20% conventional down payment. Low down payment mortgages are an attractive option for people who live in cities where rent is high and it’s tougher to save for a potential larger down payment.

A recent online poll conducted on the National Foundation for Credit Counseling (NFCC) website revealed that 72% of the respondents would not be able to afford a 20% down-payment toward the purchase of a home valued at $180,000.

Below are some of the different options and requirements for two private banks, Wells Fargo and Bank of America:

Wells Fargo:

• 3% minimum down payment
• Mortgage value of up to $417,000
• Minimum FICO score of 620
• 1/8^th percent discount on your interest rate if you complete a home buyer education class that is offered by the bank
• Mortgage insurance is required, but it can be bundled in with the mortgage

Bank of America:

• 3% minimum down payment
• Mortgage value of up to $417,000
• Minimum FICO score of 660
• No mortgage insurance is required

These mortgages will make home ownership achievable for anybody who can meet the FICO credit score requirements, has a good debt-to-income ratio (DTI), and a stable income. People who live in cities where the monthly rent is comparable to a mortgage will benefit greatly from this opportunity, as you can own a property while building equity instead of just paying rent.

A 3% down mortgage can present a great advantage to someone who lives in one of the country’s more expensive areas, such as San Francisco, Los Angeles or Chicago.

In an area such as San Diego’s Hillcrest neighborhood, a one-bedroom apartment can cost around $1,500 a month, according to ABC 10 San Diego. The average citizen of Hillcrest makes about $54,000 a year, and rent eats away at much of their average take-home pay that could be used for a down payment instead.

A low down payment can present a great financial opportunity to start building home equity early in your career while your income potential is still growing.

However, there are downsides to take into consideration as well. First off, since some mortgage lenders, such as Wells Fargo, will make you take out private mortgage insurance, this will increase your monthly payment until you put have paid off the amount not needed to be at risk. Normally, home buyers pay for private mortgage insurance until they’ve made enough payments to build up 20 percent equity in their home. This could simply push people away from homeownership if they are on a tight budget.

There are many benefits and disadvantages to a 3% down mortgage, and they are not the perfect solution for everyone. Learn as much as you can about the home buying process and consult with plenty of financial professionals to make an important decision in your financial life. With interest rates being at an all-time low, this is a good opportunity to consider buying a real estate property to begin growing your personal wealth. Contact one of the NFCC’s certified housing counselors to see if this is a good opportunity for you.[