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Until recently, conventional (Fannie Mae/Freddie Mac) loan
underwriting guidelines required a minimum of 5% down
payment. Furthermore, these guidelines stipulated that the
5% down payment must come from the borrower's own 'seasoned'
funds. In an attempt to compete with FHA and other low down
payment programs, Fannie and Freddie have introduced two
programs that allow the buyer to make a 3% down payment and
still be able to qualify to normal conventional underwriting
guidelines. With respect to conventional underwriting note
that as the down payment decreases the borrower's
qualifications must increase.
There are two variations of the conventional 3% down
program. The first, Standard 97, has fairly rigid
underwriting parameters but at a lower cost to the borrower.
The second, Alt 97, carries an extra discount cost but is
more liberal with qualifying standards. One benefit of both
variations of this program is that the loan limit is the
normal conforming limit of $252,700 (all other low down
payment programs have a limit well below this figure). A
comparison of significant features follows:
| |
Standard 97
|
Alt 97
|
| Debt/income ratio |
36%
|
41%
|
| Discount points |
0
|
1.5%
|
| Down pmt. Gift allowed |
no
|
yes
|
| Mtg. Ins. Premium |
.0091
|
.0050
|
| Secondary financing allowed |
no
|
yes
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| Income limitations |
yes
|
no
|
| 'Seasoned' down pmt. |
yes
|
no
|
| Reserves required |
1 month
|
none
|
The more liberal parameters of the Alt 97 program make it
very comparable to FHA parameters with two important
distinctions, with the Alt 97 and Standard 97 programs;
1)credit history must be vastly superior, and 2) debt to
income ratios must be significantly lower than with FHA
guidelines. Nevertheless, in cases where the sales price
of the home exceeds FHA county limits these two
conventional programs are a good alternative.
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