Wells Fargo and Bank of America now offer ‘3% down’ mortgages

Wells Fargo recently introduced a low down-payment mortgage, called “yourFirst Mortgage”. The program offers home loans for up to $417,000 with down payments as low as 3%. According to Wells Fargo, the program aims to help buyers with low to moderate income.

According to Wells Fargo, they are more flexible with the income and credit requirements under this program. The program will take into account many non-traditional sources of credit such as rent, tuition and utility payments to help establish credit history, as well as will consider income from rentals or from someone who lives in the same household but isn’t a borrower.

Moreover, buyers who put less than 10% on a down payment may also be qualified for an interest rate reduction, a ⅛ percent cut according to CNN.com, if they are willing to take a homebuyer education class before closing. With a low down payment, mortgage insurance is required. Borrowers can either choose to have the mortgage insurance wrapped into the loan or make a monthly payment until the loan-to- value falls below 80 percent.

Bank of America, in February this year, introduced a similar loan program that offered conventional mortgages with as little as ‘3% down’ payments but requires no mortgage insurance. The partnership is with Freddie Mac and Self-Help Ventures Fund, a company based in Durham, North Carolina, and the program is called “Affordable Loan Solution” mortgage.

According to Bank of America, the program will be available through all of its mortgage sales channels. Self-Help will then buy the loans and servicing rights, along with providing post-closing counseling for any borrowers who might be experiencing payment difficulties.

The loans don’t require mortgage insurance since Self-Help is taking the first-loss position. Freddie Mac will purchase all of the eligible affordable mortgages originated via the Self-Help and Bank of America partnership, having recently approved Self-Help as a seller/servicer to facilitate the rollout of this offering to borrowers. The program allows down payments as low as 3% on the purchase of a primary, single-family residence, with no reserve funds required in most situations. Applicants require a minimum 660 FICO score to be qualified and any first time buyer is required to participate in homebuyer education.

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