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House Hunters Can Utilize Loan Programs To Buy With 3% To 5% Down

With the stock market on a roller-coaster ride and affordable mortgage interest rates of 4.5% still available, now is the time for first-time home buyers to learn about an age-old axiom of real estate investing.

“Buy on the fringe and wait,” advised Chicago real estate mogul Arthur Rubloff back in the 1960s.

Now, thanks to Fannie Mae’s “Home Ready” and Freddie Mac’s “Home Possible” programs, first-time buyers can follow Rubloff’s wise advice and purchase a home or small apartment building with a conventional mortgage and place a down payment of only 3% to 5% with loan-to-value ratios of 97% and 95%, respectively.

“At first glance, these programs appear to feature less red tape compared to requirements for a Federal Housing Administration-insured (FHA) mortgage, which calls for a minimum down payment of 3.5%,” noted Realtor Sara Benson, president of Chicago-based Benson Stanley Realty.

“Freddie Mac’s Home Possible program is a responsible, affordable down-payment mortgage option for home buyers,” noted Jeremy Rose, vice president of mortgage lending for Chicago-based Guaranteed Rate. “The program is a good alternative to FHA financing. The interest rate is more competitive than a traditional conventional mortgage, making the loan payments more affordable.”

For Millennials paying off student loan debt, Home Possible may be the holy grail of loan programs that could help them vault across the threshold of homeownership.

Under the Fannie Mae and Freddie Mac programs, down payment money can come from a variety of sources, including family, employer-assistance programs, secondary financing and sweat equity.

Because the loan amount is greater than 80% of the purchase price, or appraised value (whichever is lower), private mortgage insurance is required until the borrower’s equity reaches 20%.

A wide range of mortgage types is available under the programs—from 15-year and 30-year fixed-rate loans to an assortment of adjustable-rate programs including 5/1, 5/5, 7/1 and 10/1 ARMs.

On January 3rd, Freddie Mac’s Primary Mortgage Market Survey reported that benchmark 30-year fixed mortgages nationwide averaged 4.51%, down from 4.55% a week earlier. A year ago, the 30-year fixed-loans averaged 3.95%. The average rate on 5/1 Treasury-indexed hybrid adjustable-rate mortgages averaged 3.98% on January 3rd, down from 4% a week earlier. Last year at this time the rate was 3.45%.

“Do-it-yourselfers can apply sweat equity to assist in meeting their down payment and closing costs, and co-borrowers who do not live in the home can be included for a borrower’s one-unit residence,” Freddie Mac said.

Investor borrowers are permitted to own other properties and benefit from the competitive pricing and ease of a conventional mortgage, notes Freddie Mac.

Under the guidelines of the Home Possible program, borrowers who target a property in a designated U.S. Census tract can purchase a home or condominium with a down payment of only 3%, or a 2-flat, 3-flat or 4-flat apartment building with a down payment as little as 5% and qualify for a 30-year fixed-rate mortgage with no income limits.

The Home Front column visited the Freddie Mac/Home Possible website: and found a map highlighting more than a dozen attractive North Side and Northwest Side Chicago neighborhood that fit the program. Most of these areas are north of North Avenue and west of Western.

These are census tracts that first-time borrowers could qualify for a conventional mortgage on a small apartment building with a minimum 5% down payment. Here is an alphabetical list of neighborhoods with street boundaries:

• Albany Park. Immediately west of leafy Ravenswood Manor, this bungalow and apartment neighborhood is bounded by Lawrence, Kedzie, Central Park and Eastwood.

• Arcadia Terrace. Sometimes called North Lincoln Square, this neighborhood is bounded by Western, Peterson, California and Bryn Mawr. It features many solid yellow and red brick 2-flats and 3-flats built in the 1920s.

• Avondale. Immediately south of the landmark Irving Park Villa enclave and just west of the Kennedy Expressway, Avondale is bounded by Addison, Pulaski, Diversey, the west bank of the Chicago River and Francisco. It is dotted with many nice bungalows and small apartment buildings.

• Budlong Woods. This attractive bungalow and small apartment neighborhood, located just south of Arcadia Terrace, is bounded by Byrn Mawr, Western, California and Farragut.

• Dunning. This Far Northwest Side neighborhood, bounded by Irving Park, Austin, Narragansett, Gunnison and Nora, is the home of Wright Junior College.

• Hollywood Park. Located just west of the North Branch of the Chicago River and Legion Park, this neighborhood is bounded by Devon, Peterson, Bryn Mawr and Central Park.

• Horner Park. Just west of leafy Horner Park, which is known for its competitive 16-inch softball leagues, the bungalow and 2-flat neighborhood is bounded by California, Kedzie, Montrose and Berteau.

• Pulaski Park. Bordering the Northeastern University campus, this neighborhood is bounded by the Chicago River, Bryn Mawr, Pulaski, Peterson and Devon.

• River Park. This pocket neighborhood on the northern boundary of Albany Park is just west of River Park, south of Foster, north of Lawrence and east of Pulaski. Once plagued by bad drainage and flooded basements, the area soon will benefit by a new storm water drainage system under construction in River Park.

• Rogers Park. The lakefront neighborhood is bounded by Sheridan, Howard, Western, Kedzie and Pratt. It offers a huge selection of homes and apartments.

• South Logan Square. This hot pocket neighborhood near the 606 Trail is bounded by North, California, Bloomingdale and Kedzie.

• South Old Irving Park. Immediately south of high-demand Old Irving Park and just west of Avondale, this neighborhood is bounded by Pulaski, Laramie, Fullerton and Lavergne. The census track also includes the Belmont Gardens and Kilbourn Park neighborhoods.

• West Ridge. This neighborhood, also called West Rogers Park, is bounded by Clark, Pratt, Peterson, California and Kedzie. The vintage housing stock features many small brick apartment buildings with expansive floor plans.

For more housing news, visit Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit

“The book is Escaping Condo Jail by Sara Benson and Don DeBat. I would say that anybody thinking about buying a condo, or even anybody serving on a condo board, or anybody who has any connection to a condo, this is must reading—all 600 and something pages. Thanks a lot for a great book!”


Steve Sanders, “Your Money Matters” WGN TV, December 22, 2014

By Don DeBat

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