California REALTORS® hailed the Federal Housing Finance Agency’s announcement this week that government-sponsored enterprises Fannie Mae and Freddie Mac will lower down payments to as little as 3 percent for first-time home buyers and permit refinancing borrowers to reduce equity to 3 percent to cover closing costs.

The FHFA decision to lower down payments is in line with its effort to boost the real estate market and expand the pool of first-time home buyers who have been kept in the sidelines even as the housing market has been on the path to recovery. “The new lending guidelines will enable creditworthy borrowers who can afford a mortgage, but lack the resources to pay a substantial down payment plus closing costs, to get a mortgage with 3 percent down,” said FHFA Director Melvin L Watt in a statement released on Monday.

David Tonna, president of the Silicon Valley Association of REALTORS®, applauded the FHFA’s decision to expand access to credit to first-time home buyers. “Despite an improving job market and low interest rates, the share of first-time home buyers in 2014 was the lowest in nearly three decades,” said David Tonna, president of the Silicon Valley Association of REALTORS.

Tonna said according to the 2014 National Association of REALTORS® Profile of Home Buyers and Sellers, the share of first-time home buyers dropped from 38 percent in 2013 to just 33 percent this year. This represents the lowest share since 1987, when the first-time home buyer share was at 30 percent.

“We commend the FHFA’s commitment to expand homeownership and are confident that the underwriting guidelines put in place will mitigate risk,” said Tonna.

Borrowers still need to meet strict criteria under the new programs. Only borrowers who haven’t owned a primary residence within the last three years will be eligible for Fannie Mae’s 3 percent down payment program, which starts Dec. 13. The Freddie Mac program, which will begin in March, is only for borrowers who have never owned a home, those with moderate incomes or are in underserved areas.

Borrowers for both programs will be required to buy private mortgage insurance, provide complete documentation of their income, assets and job status. Borrowers also need a credit score of at least 620 to qualify and are required to receive homeownership counseling.

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