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Mortgage products vary in their requirements for down payment, qualifying ratios, loan-to-value ratios, credit reviews and cash reserves. Some of the best deals come with income restrictions (low and moderate income home buyers only). To understand these products, it is helpful to divide them into two broad categories; conventional loans and government guaranteed or insured programs.

The Conventional loans of years ago required a 20% down payment. These loans have now joined many other loan products which require as little as a zero to five percent down payment, and they have more flexible underwriting criteria. This explosion of new loan products provides an increased opportunity for first time homebuyers to move into homeownership. This increased flexibility and corresponding risk has occurred as a result of such factors as:

  • greater sophistication and automation in the mortgage lending industry
  • establishment of Community Reinvestment Act (CRA) requirements
  • increased competition for customers
  • availability of private and government sponsored mortgage insurance
  • existence and influence of the secondary market


In 1994 Fannie Mae unveiled a mortgage product, “Fannie 97”, that required only a three percent down payment, one month mortgage reserve, and standard underwriting ratios of 28% / 38%. This program is one of the most popular program for low and moderate income home buyers and is available through a wide variety of mortgage lenders. The program provides for higher qualifying ratios, a five percent down payment with at least three percent from the purchaser. This program also allows flexibility regarding non-traditional credit histories. Debt to income ratios of 33%/38% are permitted and even higher ratios in certain circumstances. Home buyer education is required for participation.


Freddie Mac’s Affordable Gold Program has provisions for a 95% loan-to-value ratio, and it has flexibility regarding non-traditional forms of credit, reserve requirements, and qualifying ratios. Of particular interest, the Affordable Gold Program does not use a “front end/top” (housing expense to income) ratio. Rather it utilizes a single “back end/bottom” (total debt-to-income) ratio. Home buyer education is required for participation.

Lenders often refer to the Fannie 97 Program and the Affordable Gold Program as the “3/2 Program” which refers to the requirement that at least three percent of the down payment come from the buyer and the two percent can come from other sources.


Conventional financing requires mortgage insurance on all loans in which the loan-to-value (LTV) exceeds 80%. This insurance is referred to as Private Mortgage Insurance or PMI. There are eight private mortgage insurance companies. The insurance premium is the same for all eight firms and is typically added to the mortgage interest rate. The mortgage lender originating the loan selects the mortgage insurer.

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Edited and suplimented by Mory Brenner, Esq. For more information read our terms of use and privacy policy.