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Comparing the HomeReady and Home Possible Loans
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You don’t have to rely on government-backed programs to find a mortgage that allows a small down payment. Both Fannie Mae and Freddie Mac, the two major agencies that buy and sell mortgages from lenders, have their own low down payment options.
Let’s compare the Fannie Mae HomeReady® and Freddie Mac Home Possible® loan programs in more detail.
In this article:
- What is a HomeReady loan?
- What is a Home Possible loan?
- Comparing the HomeReady vs. Home Possible programs
- Should you get a HomeReady or Home Possible mortgage?
What is a HomeReady loan?
The Fannie Mae HomeReady mortgage program caters to lower-income homebuyers who don’t have a large down payment saved up.
If you qualify for a HomeReady mortgage and make the minimum down payment — or anything less than 20% — you’ll pay private mortgage insurance (PMI). The price you’ll pay for PMI depends on several factors, including your credit score and loan-to-value ratio, which is the percentage of your home’s value being financed by the mortgage.
Just as with a standard conventional mortgage, you can request PMI cancellation once your LTV reaches 80%, or wait for automatic cancellation when you have a 78% LTV.
How to qualify
Buyers who might have trouble qualifying on their income alone can benefit from adding supplemental income, such as rent payments from a tenant, to their qualifying income on a loan application.
Still, there are income limitations for HomeReady loans. Homebuyers must earn a maximum of 80% of the area median income (AMI) wherever they’re buying. You can check the income limit for your area using Fannie Mae’s lookup tool.
Eligible HomeReady borrowers also have a few options when it comes to funding their down payment and closing costs. For single-family homes, there’s no requirement for borrowers to contribute a certain percentage of their own funds. So the borrower can use gifts, grants or a Community Seconds loan to cover their cash to close.
Fannie Mae also requires first-time homebuyers to complete its Framework homeownership education program. The program is designed to help borrowers navigate the lending process and successfully manage their mortgage. The $75 course fee is waived for borrowers who use the link embedded above.
Who it’s best for
The HomeReady program is ideal if you:
- Are a first-time or repeat buyer
- Have a credit score of 620 or higher
- Have limited cash for a down payment — but at least 3%
- Earn a salary less than or equal to 80% of the area median income
- Have supplemental income from a tenant
What is a 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. PMI is required until your loan balance drops to at least 80% of the home’s value.
The program is also a good option for borrowers who don’t have a credit score because of a lack of credit history. In that case, the minimum required down payment increases to 5%.
How to qualify
Similar to the HomeReady program, Home Possible mortgages come with income limitations. The borrower’s annual income must be less than or equal to 80% local AMI.
Funds for the down payment and closing costs can come from your own funds, a gift, a grant or the Affordable Seconds program.
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 have 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 the free CreditSmart course offered by Freddie Mac.
Who it’s best for
The Home Possible mortgage program is ideal if you:
- Have limited cash for a down payment
- Have a credit score of 660 or higher
- Are repeat homebuyers or first-timers
- Are looking for flexibility in eligible down payment sources
Comparing the HomeReady vs. Home Possible programs
Below is a high-level overview of how the HomeReady and Home Possible mortgages stack up.
|Minimum down payment||3%||3%|
|Minimum credit score||620||660|
|Mortgage insurance requirement?||Yes, until 80% LTV ratio is reached||Yes, until 80% LTV ratio is reached|
|First-time homebuyer requirement?||No||No|
|Flexibility in source of down payment and closing costs?||Yes||Yes|
Should you get a HomeReady or Home Possible mortgage?
Both the HomeReady and Home Possible programs give you access to a low down payment mortgage while still enjoying the benefits of a conventional loan, such as cancelable mortgage insurance.
Choosing between the two 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 better for you.
However, there are other low down payment loans available, including:
- Federal Housing Administration (FHA) loans, which 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. The minimum FHA down payment is 3.5%, but you must have a minimum credit score of 580 to qualify. Mortgage insurance premiums are required for the life of an FHA loan unless you put down 10% or refinance later.
- U.S. Department of Veterans Affairs (VA) loans, which are reserved for military personnel, veterans and eligible surviving spouses. VA loans don’t require a minimum down payment amount, but lenders typically require at least a 620 credit score.
- U.S. Department of Agriculture (USDA) loans are for homebuyers looking to purchase a property in a designated rural area. You can get a USDA loan with 0% down and while the credit score needed for automatic loan approval is 640, it’s possible to qualify with a lower score.