Banks rush to offer 3% downpayment loans
NEW
YORK – May 31, 2016 – As some banks veer from Federal Housing
Administration (FHA) loans, they're offering their own low downpayment
mortgages to appeal to home shoppers struggling to save enough to buy a
home. Wells Fargo made headlines this week when it debuted its 3 percent
downpayment loan.
JPMorgan Chase also announced its offering
called the "Standard Agency 97percent" program, a 3 percent down payment
loan geared for first-time home buyers and requires a FICO score of
680. Chase also has a loan program called "DreaMaker Mortgage," which
offers a 5 percent down payment – 3 percent of which can come from the
borrower as well as flexible funding options for closing costs and
reduced mortgage insurance requirements.
Other banks have recently announced their low downpayment offerings.
Earlier
this year, Bank of America began offering a 3 percent downpayment loan
that did not involve the Federal Housing Administration and does not
require mortgage insurance. The bank requires a minimum FICO score of
660.
Wells Fargo's newly launching lending program,
"yourFirstMortgage," requires a 620 FICO minimum score and minimum
downpayment of 3 percent for a fixed-rate conventional mortgage of up to
$417,000. Downpayment assistance also can come from gifts and community
assistance programs. Customers who complete a homebuyer education
course can earn a 1/8 percent interest rate reduction, although the
course is not required.
Brad Blackwell, executive vice president
and portfolio business manager at Wells Fargo, says the monthly payment
for the loan will be less than a government-insured FHA loan.
"We've
taken all the complexity of the home mortgage lending process, removed
it from the front-line consumer, so that it's easy for them to
understand and Wells Fargo is taking care of all the capital markets and
other types of complexities behind the scenes," says Blackwell.
Bank
giants have been leery of FHA loans lately, with JPMorgan Chase CEO
Jamie Dimon's calling FHA lending "too costly and too risky" to pursue
extensively.
"We have dramatically reduced FHA originations,"
Dimon wrote in his yearly letter to shareholders. "Currently, it simply
is too costly and too risky to originate these kinds of mortgages. Part
of the risk comes from the penalties that the government charges if you
make a mistake – and part of the risk is because these types of
mortgages default frequently."
Dimon acknowledges Chase's new low
downpayment lending program also carries some of those risks, but he
believes it responds to customers' needs.
"Mortgages are important
to our customers," Dimon wrote in the letter. "For most of our
customers, their home is the single largest purchase they will make in
their lifetime. More than that, it is an emotional purchase – it is
where they are getting their start, raising a family or maybe spending
their retirement years. As a bank that wants to build lifelong
relationships with its customers, we want to be there for them at life's
most critical junctures."
Source: "Wells Fargo Launches 3% Down
Payment Mortgage," CNBC (May 26, 2016) and "Chase Quietly Launches Its
Own 3% Down Mortgage Lending Program," HousingWire (May 26, 2016)
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