Buying a House With 3% Down Payment

By Douglas A. McIntyre Updated Jan 13, 5:05AM EST · Published Jul 31, 9:13AM EDT

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Buying a House With 3% Down Payment — © Thinkstock

One of the hallmarks of the most recent housing bust, which took home values down as much as 50% in places like Florida and Nevada, was how little some people had to make as a down payment. In some cases, the down payments were zero. As home prices plummeted, people’s houses became worth less than their mortgages, which was termed as being “under water.” And many of these owners defaulted.

Very low down payments are back, as little as 3%, a sign, along with high home prices, of a new bubble.

According to Credit.com:

HomeReady, the mortgage option that allows borrowers to qualify with income from non-borrower household members, is getting an upgrade.

That’s according to government-sponsored mortgage titan Fannie Mae, who announced the following features in a release on Tuesday, the day the changes went into effect. Among them, occupant borrowers on a HomeReady loan can own other residential properties, and there will no longer be a requirement for homeownership education for limited cash-out refinance transactions.

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Also:

Targeting borrowers in areas the U.S. Census Bureau deemed as low-income, Fannie Mae launched the HomeReady program in fall 2015. The loan was notable for the fact that it factors non-borrower household members’ incomes into applicants’ eligibility. Applications can include borrowers who aren’t currently living in the home, such as parents, as well as rental income the borrower may earn from renting a basement apartment, for instance. HomeReady also helps qualified borrowers purchase a home with a down payment of as little as 3% down.

The “homeowner education” does not seem to be a hurdle to irresponsible borrowing any more than drug education keeps people from using illegal or dangerous drugs. The

The government is usually well-meaning when it creates programs like this. However, in the spirit of helping people, it often undermines their finances. This new program smells of that. All the housing market needs is a new increase in mortgage defaults.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.