We Tried to Sell Our Home by Owner

As the real estate market has recovered from the housing crisis of a decade ago, rising home prices are of concern once again. As a home increases in value, so does the down payment required to obtain a mortgage to buy the property. Although loans guaranteed by the Federal Housing Administration are often assumed to require the least down payment, home buyers may be able to obtain a conventional mortgage with a smaller down payment.

Conventional mortgages are made by private lenders, but the loans typically conform to standards set by a couple of quasi-governmental agencies that buy the debts. Both Fannie Mae and Freddie Mac buy conforming loans and package the debts together as financial securities. By selling the debt, the original lender is able to provide more loans to other home buyers. The original lender may also continue to provide loan servicing during the life of the mortgage.

Down payment of 3 percent

One of the agencies, Fannie Mae, has a conforming loan option with a down payment requirement of as little as 3 percent. This offering is not to be confused with the HomeReady mortgage, another conventional loan option with a loan-to-value ratio of 97 percent. One of the main requirements to obtaining a standard Fannie Mae loan with a down payment of 3 percent is that you must be considered a first-time home buyer.

First-time home buyer requirement

For lending purposes, Fannie Mae defines a first-time home buyer as someone who hasn't owned a residential property during the past three years. If two persons are buying a home, at least one of you must meet the Fannie Mae definition of a first-time home buyer.

Eligible property types

To qualify for the down payment of 3 percent, the home purchased must be used as your main residence. The residence purchased must be a single home unit, but it can be a townhouse or a condominium. Manufactured homes do not qualify for the down payment of 3 percent. A house purchased as a vacation home or a rental property is not eligible and is subject to a higher down payment requirement.

Other financial considerations

Interest rates continue to hover at relatively low levels. To qualify for the down payment of 3 percent, the loan must include a fixed interest rate. As with most conventional mortgages, private mortgage insurance is required until your equity level reaches 20 percent.

Mortgage lenders structure their available loan offers so that the resulting debts are marketable. However, every specialized loan program is not necessarily available through all mortgage lenders. Contact a real estate agent for more information on mortgages.