Home Possible vs. HomeReady Loans: What’s the Difference?
If saving up for a down payment is a struggle, there are several low-down-payment mortgage options out there to help. Fannie Mae and Freddie Mac — companies created by the U.S. government to help more people buy homes — both offer loan programs that only require a 3% down payment. For homebuyers interested in a conventional mortgage, here’s a side-by-side comparison of the HomeReady® and Home Possible® loan options, including the requirements needed to qualify for each one.
- Both programs are designed to help put home ownership within reach for low-income homebuyers, including those with lower credit and limited down payment funds.
- Choose Home Possible if you have stronger credit (660+). It’s also a good choice if you have no credit history, as it offers an option where the lender can use methods other than traditional credit reports to see if you qualify.
- Choose HomeReady if you have a lower credit score (620+), and you’re looking for a program that allows flexible income sources for a down payment.
- The two programs have many similarities. For example, both HomeReady and Home Possible require 3% down and have an 80% area median income (AMI) limit.
Overview: Home Possible vs. HomeReady mortgages
| Home Possible | HomeReady | |
|---|---|---|
| Minimum down payment | 3% | 3% |
| Minimum credit score | 660 | 620 |
| Mortgage insurance requirement | Yes, until 80% LTV ratio is reachedReduced PMI with less than a 10% down payment | Yes, until 80% LTV ratio is reachedReduced PMI with less than a 10% down payment |
| First-time homebuyer requirement? | No | No |
| Flexible down payment and closing costs sources allowed? | Yes | Yes |
| Income limits? | 80% of AMI | 80% of AMI |
| Boarder income allowed? | Yes | Yes |
Use Freddie Mac’s eligibility map to see whether you may be eligible for a Home Possible mortgage based on the home’s location and your qualifying income. Simply enter an address to view the Home Possible income limit, as well as other AMI benchmarks for that area.
Since HomeReady shares the same income limits, you can check your HomeReady eligibility the same way.
What is a HomeReady loan?
The Fannie Mae HomeReady mortgage program caters to lower-income homebuyers with limited down payment savings.
Qualified buyers only need a 3% down payment, which is less than the 3.5% down payment minimum required for loans backed by the Federal Housing Administration (FHA). In addition, very-low-income first-time homebuyers — those who make 50% or less of their AMI — may also qualify for a $2,500 credit, which can be used toward their down payment and closing costs.
Like other conventional loans, you’ll pay for private mortgage insurance (PMI) if you make less than a 20% down payment on a HomeReady loan. However, PMI premiums are reduced for HomeReady-eligible borrowers, which helps keep the monthly payment lower than on a standard conventional loan.
Your PMI premium varies based on your credit score and loan-to-value (LTV) ratio, which is the percentage of your home’s value being financed by the mortgage. You can request PMI cancellation once your LTV ratio reaches 80% or wait for automated cancellation when it hits 78%.
How to qualify for a HomeReady loan
The HomeReady program makes it easier for homebuyers to qualify with flexible down payment and income guidelines. However, there are extra steps to take and conditions to meet in order to be approved for this loan program — these include:
Meeting HomeReady income limits: To qualify for a HomeReady loan, buyers must earn no more than 80% of the area median income wherever they’re buying. You can check your local income limit by using Fannie Mae’s AMI lookup tool.
Following down payment guidelines: Eligible HomeReady borrowers don’t have to contribute a certain percentage of their own funds toward the down payment requirement on a single-family home. Gifts, grants or a Community Seconds® loan can be used to cover their closing costs.
Completing homebuyer education: If all borrowers who will live in the home are first-time homebuyers, Fannie Mae requires at least one of them to complete its Fannie Mae HomeView™ homeownership education program. This free program is designed to help borrowers navigate the lending process and successfully manage their mortgages.
Accounting for rental income: Buyers who might have trouble qualifying with just their income may be able to add the rental income from a tenant in their home, even if the tenant isn’t on the loan application.
Who it’s best for
The HomeReady program is ideal if you:
- Are a first-time or repeat buyer
- Have a 620 credit score or higher
- Have limited cash for a down payment
- Earn a salary up to 80% of the area median income
- Have supplemental income from a tenant
Get your free credit score with LendingTree Spring.
What is the Home Possible loan?
Freddie Mac’s Home Possible mortgage program is geared toward low- to moderate-income borrowers who can afford a 3% down payment. Like the HomeReady loan, PMI is discounted, though it’s also required until your loan balance drops to at least 80% of the home’s value.
Although the Home Possible loan sets a higher minimum credit score guideline (660) than the HomeReady loan, it also provides an option for borrowers who don’t have a credit score because of a lack of credit history. However, that no-credit-score flexibility comes with a minimum 5% down payment.
How to qualify for a Home Possible loan
Home Possible income limits: Similar to the HomeReady program, Home Possible mortgages have income limitations. The borrower’s annual income must be less than or equal to 80% of the local AMI.
Down payment options: No minimum personal contribution is required, meaning that funds for the down payment and closing costs won’t need to come from your own savings. They can come from a gift, a grant or the Affordable Seconds® program.
Homebuyer education: Buyers are required to complete a homebuyer education course if all borrowers on the loan are first-time buyers, or if none of the borrowers has a credit score. They can meet the education requirement by taking a course from an eligible source, such as a HUD-approved counseling agency, housing finance agency or Freddie Mac’s free CreditSmart® Homebuyer U course.
Rental income: Like the HomeReady program, the Home Possible loan may allow income from someone who is living in the home but isn’t on the loan paperwork.
Who it’s best for
The Home Possible mortgage program is ideal if you:
- Are a repeat or first-time homebuyer
- Have a 660 credit score or higher
- Have limited cash for a down payment
- Are looking for flexibility in eligible down payment sources
Should you get a HomeReady or Home Possible loan?
Choosing between the HomeReady and Home Possible programs might come down to your credit score. For example, if your score is at least 620, you might lean toward a HomeReady loan. But if your score is above 660, a Home Possible loan might be a better fit for you.
Alternatives to consider
If you make more income than these programs allow or need a no-down-payment mortgage, you have a variety of options. As alternatives to the HomeReady or Home Possible loans, you may want to consider one or more of these other government-backed loan programs.
FHA loans
FHA loans are geared toward homebuyers with fair credit. You can get an FHA loan with a credit score as low as 500 if you make a 10% down payment, and there are no income limits. The minimum FHA down payment is 3.5%, but you’ll need a minimum 580 credit score to qualify. You’ll pay FHA mortgage insurance premiums for the life of the loan, unless you put down 10% or refinance later. While FHA loans may have a slightly lower interest rate than conventional loans like Home Possible and HomeReady, they may have slightly higher overall costs, so make sure to look at the APR.
VA loans
U.S. Department of Veterans Affairs (VA) loans are reserved for military personnel, veterans and eligible surviving spouses. VA loans don’t require a minimum down payment or mortgage insurance, but there is a VA funding fee. And although there’s no minimum credit score, lenders will typically set their own minimum credit score requirements. A VA loan may offer significantly lower interest rates and costs than a conventional loan like Home Possible or HomeReady, though it’s important to get rate quotes from lenders and comparison shop to be sure.
USDA loans
U.S. Department of Agriculture (USDA) loans are for homebuyers looking to purchase a property in a designated rural area. Income limits apply, but eligible borrowers can get a USDA loan with 0% down. While the credit score needed for automatic loan approval is 640,
it’s possible to qualify with a lower score. USDA loans also may have significantly lower rates than conventional loans for low-income borrowers, but be sure to comparison shop and get quotes from lenders in order to find the best loan type for your situation.
DPA programs
Down payment assistance (DPA) programs are typically available through local and state housing finance agencies. These down payment assistance options can be used to meet the minimum down payment and closing cost requirements for HomeReady, Home Possible and FHA loans. You may receive the DPA funds as a grant or a second mortgage.
First-time homebuyer programs
First-time homebuyer programs, offered nationally and at the state level, can help qualifying homebuyers purchase a home. The good news is that you may be eligible for many first-time homebuyer programs even if this isn’t your first home purchase. For example, the HUD definition of a first-time homebuyer is someone who hasn’t owned their main residence in the past three years.
View mortgage loan offers from up to 5 lenders in minutes