New policies for borrowers by Fannie Mae and Freddie Mac, which are designed to help low-income and first-time home buyers get mortgages, were announced Monday.
The mortgage giants are planning to start backing borrowers with down payments of as little as 3 percent of the home's total price, reported CNN Money.
The catch is that new loans with this tiny down payment will only be accepted if the buyer is purchasing private mortgage insurance, has a credit score of at least 620, offers complete documentation of their income, assets and job status, and attends mandatory home ownership counseling.
"I'm confident that the majority of the lending community is going to take part in these programs," David Stevens, chief executive of the Mortgage Bankers Association, told The Slate. "They're more confident about the risks they face in extending these loans."
Previously Fannie Mae and Freddie Mac backed mortgages in which the buyer put a down payment of at least 5 percent of the total property cost.
Although it's not a dramatic change, the new standards may entice young buyers who haven't had enough time to save a large sum of money to buy a house just yet.
"It's not a radical departure from what we're doing now, but anything at the margins helps," Mark Palim, who directs economic and strategic research at Fannie Mae, said to CNN Money.
Young buyers are often turned down when looking to buy a house for the first time because they are required to submit unusually high credit scores and follow tough standards on government-backed loans, reported The Slate.
Critics say the low down payments being offered are contributing to the foreclosure crisis, noting that if someone can't afford the down payment then they may not be able to afford the mortgage's monthly payment.
Freddie and Frannie rejected that statement, saying they are only offering the low down payment option to those who can prove they will be able to handle repaying the loan.
"These underwriting guidelines provide a responsible approach to improving access to credit while ensuring safe and sound lending practices," Mel Watt, director of the Federal Housing Finance Agency, said in a statement.
