A mortgage that lets you buy with a fraction of the usual down payment

By Leigh Kamping-Carder | December 18, 2014 - 1:59PM

"Excitement" and "mortgage news" don't often belong in the same sentence, but this week, there's a major exception. On Monday, Freddie Mac unveiled a new loan program that lets buyers borrow up to 97 percent of an apartment's value--that's a down payment of a mere 3 percent, as opposed to the standard 20 percent required for most purchases. In other words, to buy a $500,000 apartment, for example, you'd only need $15,000 in the bank instead of a whopping $100,000. In a place like New York City could mean the difference between buying a place and watching your paycheck disappear into your landlord’s pocket for the foreseeable future. The program is a change for the mortgage giant, which has reportedly forced borrowers to come up with at least 5 percent since 2011.

Dubbed the Home Possible Advantage, the program goes into effect March 23, and can even be used to refinance an existing mortgage (with caveats). And, like most of these low-down-payment mortgage offerings (New York State runs a similar 3-percent-down option), this one comes with a list of restrictions:

Mortgages are only available for condos and single-family houses, so if you’re buying a co-op, look elsewhere. (Of course, co-op buildings often require buyers to put down at least 20 percent anyway.)
The place has to be your primary residence, i.e. you have to live there.
You can’t make more than the area median income, which in New York is $78,100 a year. (In certain “underserved” areas, including in the city, there are no income restrictions.)
You’ll need to have a credit score of at least 660.
Just like with any loan where you’re borrowing more than 80 percent of the home’s value, you’ll have to pay for private mortgage insurance. The exact cost will depend on how much you take out (known as the loan-to-value ratio), but Freddie Mac pegs the fees at about $40 to $80 per month for every $100,000 you borrow.
First-time buyers must take a homeownership education program.

That said, if you’re struggling to pull together a down payment and want to get in on the market, Freddie Mac just gave you a well-timed holiday gift.

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