Lender's program reduces down-payment burden

      Stock market investors who want to buy a home may be able to do so without taking their money out of investments for a down payment, providing they have a good credit rating and can cover their mortgage payment.
      Fannie Mae's Flexible 97 Mortgage program requires a 3 percent down, but this can come from a gift from a family member, a grant from a housing authority or other agency, or even a secured or unsecured loan, according to David Thompson, a spokesman for secondary lending giant Fannie Mae.
      "The credit rating is the big thing here," Thompson said. "This is not for people who have questionable credit."
      However, before taking advantage of the program, prospective buyers who have down payment money tied up in investments may want to look closely at their investments, particularly at the rate of return they are making and at the interest rates they'll be paying for the mortgage. The tax advantages and disadvantages of each should be examined.
      Mortgages under Flexible 97 will be fixed-rate loans with 15-, 20-, 25-, or 30-year terms. With 3 percent down, the monthly payments will be larger than they would be with a 5 to 20 percent down payment. Those who do buy a home under the program will also have to buy private mortgage insurance, and keep it until they end up having a 20 percent equity in the property, or until they sell the place.
      This could be a situation in which the short-term gain of being able to leave money invested may turn into a long-term pain when the reality of large mortgage payments sinks in. On the other hand, it could be the most intelligent financial move to home buyer could make. The right answer depends upon personal circumstances, including income, spouse's income, age, job security, tax status, family obligations, and plans for the future.
      Other important circumstances include job and income security; major expenses looming in the future, such as college tuition or medical costs; investments; and relocation plans.
      Fannie Mae estimates the new program will help 40,000 people buy homes this year.
      "Fannie Mae's National Housing Surveys have consistently shown that the major barrier to home ownership is people's inability to save funds for a down payment," said Jamie Gorelick, company vice chairman. "The Flexible 97 mortgage provides borrowers of all income levels, who have demonstrated the ability to use credit wisely, with additional sources of down payment funds."
      This is the first time the lender has allowed people to borrow all the money they use for a down payment, or to use money from a gift. The program also has an option for people who already own a home and want to move up to a bigger one, but they do not have enough equity in their current home to cover the down payment and closing costs. There is no income limitation, and buyers can obtain mortgages of as much as the conventional loan limit -- $227,150.
      --Jim De Both is president of Mortgage Market Information Services -- a national publisher of mortgage rates and information.