West Loop Condo Buyers Might Have New Low Down Payment Option Soon

November 10, 2014


3% percentage rate icon on a white backgroundFirst-time home buyers in Chicago’s West Loop neighborhood have a new 3% down payment mortgage option on the horizon.

Often lacking enough cash for a down payment to buy a home, condo or loft with the conventional 20% down mortgage or not willing to pay the mortgage insurance premiums associate with an FHA loan, many area home buyers have had to be content to rent.

In fact, the National Association of Realtors (NAR) estimates that between 125,000 and 375,000 renters were priced out of the homebuyers market in 2013 due to high priced FHA mortgage insurance.

Good news! Today’s New York Times reports that now Fannie Mae is planning a new low-down-payment mortgage option that will allow home buyers to buy with only 3% down and without the expense involved with the other low-down-payment option backed by the FHA (Federal Housing Administration).

Wait you say, wasn’t the availability of “easy money” via low or no down payment mortgage options one of the major factors that fueled the real estate crisis of 2008 and caused many Americans to eventually lose their homes?

Yes it was but according to the CEO of Fannie Mae, Timothy J. Mayopoulos, the new Fannie Mae backed program won’t have the same result and will be less costly for borrowers than FHA loans thus enabling many more people to have access to home ownership.

So what makes it possible to offer a low-down-payment mortgage now?

Apparently private mortgage insurers have an appetite for insuring the gap between Fannie Mae’s chartered mandate requiring 20% down and the 3% planned in the new loan design. Time will tell if they really do but it’s a good idea to shift the risk from the government to the private sector. (Of course the government has a reputation for bailing out the private sector when need be!) So we will watch for the launch of the new Fannie Mae program and keep you posted.

Loft For Sale at 565 W. QuincyMeanwhile, in case you’re a first-time buyer wanting to buy a West Loop condo or loft right now and don’t want to wait for the new program, here’s a little about currently available FHA loans:

Qualifying for a FHA loan is less difficult than qualifying for a conventional mortgage and you can buy a home with a down payment as small as 3.5% and lower credit scores.

Plus, there are no income limits for a FHA loan and you can use gifts (like cash from mom and dad!) towards down payments and closing costs.

And there aren’t any prepayment penalties so you’re free to refinance or pay off your home early.

However, you do have to pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.

There are two mortgage insurance premiums for all FHA loans: an upfront premium of 1.75% of the loan amount and an annual premium, which varies based on the length of the loan, the amount of money borrowed and the initial loan-to-value ratio (LTV). These are real costs but until now borrowers with minimal down payments and less than stellar credit didn’t have much choice.

So if you’re ready to enjoy the benefits of owning a West Loop condo or loft you might want to consider talking with one our client’s favorite lenders Matt Tierney of Chicago based Guaranteed Rate about your options.

This article was originally published on Best Chicago Properties on Nov. 7, 2014. To view the original article, click here.

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