Bank of America unveiled a new mortgage program on Monday, which will allow borrowers to make down payments of as little as 3 percent, according to Realtor.com. The program will let borrowers avoid private mortgage insurance.
This new loan is meant to cut the Federal Housing Administration out of the entire process. Instead of being backed or insured by the FHA, the loans are backed in a partnership with Freddie Mac and the Self-Help Ventures Fund, a nonprofit based in North Carolina (where Bank of America is also based). Because of the threat of big penalties for minor errors, many big banks are pulling back from FHA-insured lending.
According to Bank of America, a borrower with a$150,000 mortgage, a credit score between 680 and 719, and a 3 percent down payment would have a monthly cost of about $782 for the new mortgage.
In order to be eligible for the new program, borrowers need a credit score of at least 660 and an income that is less than the area’s median. The 660 credit score is higher than what the FHA requires. Bank of America will cap the new program’s loan production at $500 million annually and says 75 percent of the loans would have otherwise been backed by the FHA.