First Time Home Buyers embrace opportunity to put less down


Both Fannie Mae and Freddie Mac introduced low down payment mortgages nearly two years ago, and slowly but surely the product has made it’s way into the market with both big and small lenders.

In a recent interview with Housing Wire, Mat Ishbia, CEO of United Wholesale Mortgage, explained why these mortgages are growing in popularity, especially among Millennial buyers. Are 3% down mortgages going to be the new normal?

It’s a common misconception for borrowers to think they need to put 20% down a mortgage, which often becomes the biggest roadblock to home ownership.

Ishbia explained that he thinks there are two reasons why 3% down mortgages have taken a while to catch on.

1. Mortgage Insurance

“People have this stigma about mortgage insurance like it’s this horrible thing. So instead of paying mortgage insurance, borrowers put another 40K down.”

2. Building equity

The other thing is that people think they have to build equity and pay down their mortgage. The way you build equity in houses is not by paying down your mortgage or by putting a bigger number down. I am real big on cash is king. When people run into a financial problem, it isn’t because everyone has too high of a loan-to-value ratio. What happened was they couldn’t afford a payment and then they lost their job.


Instead, Ishbia says, “I would put 3% or 5% down and keep that extra 15% in your pocket for when you buy furniture, when your car breaks down or when something happens to your new house. Basically, putting 20% down is like digging a hole in the backyard and burying the money.  

“If you have 20% to put on a house, you probably waited too long to buy a house,” he joked.

Freddie Mac  announced in December 2014 its Home Possible Advantage program, an affordable conforming, conventional mortgage with a 3% down payment to help more first-time home buyers and other qualified borrowers jump into the market.

Around the same time, Fannie Mae posted a very similar announcement, releasing an option for qualified first-time home buyers that allows for a down payment as low as 3%.

While some banks are hesitant to jump on board the low down payment idea, Freddie is putting much effort into making lenders comfortable with originating the product.

If you have questions about if this product is right for you, please contact me for a no cost, no obligation consultation and I will be happy to explain and answer any of your questions.

Jackie Barikhan is a loan officer with Right Choice Mortgage. She has been helping people find the Right Mortgage with The Right Lender at the Right Price since 1997.