Understanding Today’s Connected Borrower

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Are 3% down mortgages the new normal?

Young borrowers embrace opportunity to put less down

Fannie Mae and Freddie Mac introduced 3% down mortgages nearly two years ago, and the product has slowly made its way into both big and small lender offerings since then, as the shock and awe of the original announcement wore off.

In a recent interview with HousingWire, 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? 

His response? “Absolutely.”

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

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

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

While some in the industry are hesitant to jump onboard the low down payment idea, Freddie is putting a lot of effort into making lenders comfortable with originating the product. HousingWire recently hosted a webinar with Freddie Mac and U.S. Bank on the secret to closing more 3% down mortgages.

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