Pssst! Wanna Get 3% Down Conventional Loan Today?

iStock_000010654155SmallBackground. Not long after the housing bust and collapse of affordable mortgage lending, the “new subprime” became the FHA, that government home loan program insured by the Federal Housing Administration, offering downpayments as low as 3.5%.[1]  According to the online site, Bankrate:

Two mortgage insurance premiums are required on all FHA loans: The upfront premium is 1.75% of the loan amount — $1,750 for a $100,000 loan. This upfront premium is paid when the borrower gets the loan. It can be financed as part of the loan amount. The second is called the annual premium, although it is paid monthly.[2]

As opposed to FHA, borrowers can get conventional[3] mortgage loans, which are generally considered faster to process and have no mortgage insurance requirements for borrowers with at least 20% downpayments.  The downside of conventional loans is that the credit score and credit history requirements are more stringent than FHA’s. Accordingly, for borrowers with lower credit scores, sporadic credit histories, and higher debt-to-income ratios, an FHA loan is one of the few available programs.

The New BofA Loan Program.  Recently, Bank of America announced its new affordable mortgage program with as little as 3.00% down and no costly mortgage insurance premium. According to a February 22, 2015 Housingwire article (“Bank of America now offers 3% down mortgages without mortgage insurance”), by Brenda Swanson:

Bank of America announced a partnership on Monday with Self-Help Ventures Fund and Freddie Mac for its new “Affordable Loan Solution” mortgage, a conforming loan that provides low- and moderate-income homebuyers access to a responsible lending product with counseling at affordable entry prices.

To make the program function, the three companies will work together to help ensure the loan is properly originated and backed in case the loan goes delinquent, the companies said Monday.

For starters, Bank of America said the mortgage will be available through all of its mortgage sales channels.

Self-Help, which is based in Durham, North Carolina, will then buy the loans and servicing rights, along with providing post-closing counseling for any borrowers who might be experiencing payment difficulties.

Since Self-Help is taking the first-loss position, the loans require no mortgage insurance.

Freddie Mac will purchase all of the eligible affordable mortgages originated via the Self-Help and Bank of America partnership, having recently approving Self-Help as a seller/servicer to facilitate the rollout of this offering to borrowers.

The loan also requires a minimum FICO score of 660, and first-time buyers will need to participate in homebuyer education.

Conclusion.  In the years following the financial/housing crisis, Bank of America and many other Big Banks, were sued by the federal government seeking recovery of the FHA insurance paid to them on defaulted loans that were subsequently found to have violated those lenders’ reps and warranties regarding loan quality.  (See online stories here.)  The banks have not forgotten the bad old days, and are now gun-shy about wading back into those waters. (See online stories here.)

It now appears that BofA is taking its affordable home loan business elsewhere. We can expect other lenders to follow suit. That’s a good thing for borrowers who have, to date, been locked out of the housing market; they now have more choice and opportunity to get a piece of the American Pie.

For B of A’s details on the Affordable Loan Solution program, go to Q-Law Articles here. ~PCQ

[1] With a 580 credit score or higher. For applicants with scores between 500 and 579, the downpayment is usually 10%, and those under 500 are normally ineligible, absent certain exceptions. See link here, for more.

[2] See, also,

[3] A conventional loan is any loan that is not guaranteed or insured by the federal government. The government’s insured or guaranteed loan programs include the FHA, Oregon and Federal VA, and USDA.