A new loan program from Bank of America (“BOA”) will allow low and medium income borrowers to get loans up to $417,000 with only 3% down instead of the traditional 20%.
Borrowers can’t make more than the medium income for their area and need a credit score of at least 660. And the home must be the borrower’s primary residence.
Borrowers will not have to pay private mortgage insurance (PMI) that was typically required on loans with down payments of less than 20%. First-time buyers will have to attend a homebuyer education program.
As with most mortgages, borrowers must still have a debt-to-income (“DTI”) ratio of no more than 43%. But Bank of America will also consider non-traditional forms of credit, like daycare expenses, health club memberships and rental history, to help determine credit history.
Interest rates on the loans will be determined by a borrower’s creditworthiness and score, but BOA’s loan option will be cheaper than FHA’s rate (around 3.85% right now for a 30-year fixed rate)
Putting less money down means you’re financing more, which leads to higher monthly payments and more money paid out in interest over the life of the loan. It also means you have less equity in the home, which could make you more vulnerable if home prices drop and to foreclosure as well.