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Comparing the HomeReady and Home Possible Loans

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Government-backed mortgage programs aren’t the only ones that offer small-down-payment loans. Fannie Mae and Freddie Mac, the two major agencies that buy and sell mortgages from lenders, have their own low-down-payment mortgages: the Fannie Mae HomeReady® and Freddie Mac Home Possible® programs. Below, we’ll compare the two home loan options in more detail.

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. 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).

Like other conventional mortgages, 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 a standard conventional loan.

A few things you should know about PMI:

  • 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%
  • You can wait for automated cancellation when you reach a 78% LTV ratio

How to qualify

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, which we’ll explain next.

Income limits. To qualify for a HomeReady loan, buyers must earn no more than 80% of the area median income (AMI) wherever they’re buying. You can check your local income limit by using Fannie Mae’s lookup tool.

Down payment options. 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 cash to close.

Homebuyer education. Fannie Mae requires first-time homebuyers to complete its Fannie Mae HomeView™ homeownership education program. The program is free of charge and designed to help borrowers navigate the lending process and successfully manage their mortgages.

Boarder income. Buyers who might have trouble qualifying with just their income may be able to add the income of a tenant renting a room in their home, even if the tenant is not 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 less than or equal to 80% of the area median income
  • Have supplemental income from a tenant

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 and 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

Income limits. 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% of the local AMI.

Down payment options. Funds for the down payment and closing costs can come from your own savings, 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 an HUD-approved counseling agency, housing finance agency or the free CreditSmart® Homebuyer U course offered by Freddie Mac.

Boarder income. Like the HomeReady program, the Home Possible loan may allow income from someone who is living in the home but not on the loan paperwork.

Who it’s best for

The Home Possible mortgage program is ideal if you:

  • Have limited cash for a down payment
  • Have a 660 credit score or higher
  • Are a repeat or first-time homebuyer
  • Are looking for flexibility in eligible down payment sources

Comparing the HomeReady vs. Home Possible programs

Below is an overview of how the HomeReady and Home Possible mortgages stack up.

HomeReadyHome Possible
Minimum down payment3%3%
Minimum credit score620660
Mortgage insurance requirementYes, until 80% LTV ratio is reached
Reduced PMI with less than a 10% down payment
Yes, until 80% LTV ratio is reached
Reduced PMI with less than a 10% down payment
First-time homebuyer requirement?NoNo
Flexible down payment and closing costs sources?YesYes
Income limits?YesYes
Boarder income allowed?YesYes

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 with 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 a better fit for you.

However, if you make more income than these programs allow or need a no-down-payment mortgage, consider one of these government-backed loan programs:

  • 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.
  • 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 amount and don’t impose income limits. Although there is no minimum credit score, some lenders set their minimum at 620.
  • 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.
  • 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.
 

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