Not to be outdone by its competitor Bank of America, which announced a 3% down payment mortgage program earlier this year, Wells Fargo recently stated that it too would offer fixed-rate mortgages for first-time buyers with down payments as low as 3%.
This is significant for two reasons: (1) Wells Fargo is the largest mortgage lender in the United States, by volume. So this new program could be extended to a significant number of home buyers nationwide. (2) The 3% down payment falls below the FHA’s minimum requirement of 3.5%.
The fact that this program undercuts FHA is not a matter of chance or coincidence. Bank of America, Wells Fargo, and other lenders with similar offerings are essentially luring business away from the Federal Housing Administration. They’re doing this by offering an attractive and potentially cheaper alternative to the government-insured FHA loans.
The Wells Fargo 3% down payment mortgage has a nifty name too. They call it yourFirst MortgageSM (the italics are theirs). From here on out, I’ll refer to it as “the loan program” for simplicity.
Wells Fargo 3% Down Payment Mortgage
So what does this sexy new loan program offer for qualified first-time home buyers? Here are the specific features and requirements, adapted from a May 26 news release:
Smaller down payment means less money out of pocket.
Borrowers who qualify for the program could obtain a conventional (non-FHA) fixed-rate mortgage loan with a down payment as low as 3%. But borrowers don’t necessarily have to pay it out of their own pockets. According to the Wells Fargo program announcement, the down payment and closing costs “can come from gifts and down payment assistance programs.”
Educational incentives give home buyers a reason to learn.
Wells Fargo wants first-time home buyers to make smart, well-informed decisions about their purchases. To that end, they are offering an education-based incentive. Customers who complete an approved home buyer education course could earn a 1/8-percent interest rate reduction on their loans. The course must be provided by a HUD-approved counselor.
Broader credit and income requirements mean less hurdles for borrowers.
The Wells Fargo 3% down payment program also features “expanded credit criteria.” This means first-time home buyers with limited credit histories (that might have disqualified them in the past) could still qualify for the loan. The company will expand its credit history requirements to include “nontraditional sources, like tuition, rent, or utility bill payments.” Additionally, Wells Fargo said it will consider the income of others who will live in the home, such as family members or renters.
Borrowers must be able to repay the loan, with documents to prove it.
In keeping with the federal government’s fairly new (and sensible) Ability-to-Repay rule, first-time home buyers who use the Wells Fargo 3% down payment mortgage program must be able to demonstrate their ability to repay the debt. This is typically done with bank statements, pay stubs, and other documents that show income and assets. Additionally, the loan must be “fully documented and underwritten,” according to Wells Fargo.
Fewer Barriers for First-Time Home Buyers
These are noteworthy changes to the company’s lending policy, and they could affect a large number of first-time home buyers who otherwise might not qualify for a mortgage loan. The 3% down payment program reduces the upfront expenses associated with a home loan, and it offers broader qualification criteria to bring more borrowers into the program.
According to Brad Blackwell, Executive Vice President of Wells Fargo Home Lending:
“[W]e wanted to provide access to credit and simplify the experience while maintaining responsible lending practices. We partnered with credit experts such as Fannie Mae and Self-Help, an affiliate of the Center for Responsible Lending, to develop an easy-to-understand affordable loan option that gives homebuyers the best offering in the market.”