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Comparing the HomeReady and Home Possible Loans

Updated on:
Content was accurate at the time of publication.

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 — the two largest buyers of residential mortgages — each offer their own loan programs that only require a 3% down payment. Here’s what you need to know about the HomeReady® and Home Possible® loan options for homebuyers interested in a conventional mortgage.

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 borrowers — those who make 50% or less of their area median income (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 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 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 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. Fannie Mae requires first-time homebuyers 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 boarder 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.

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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
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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

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. 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 be 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.

Boarder 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

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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 allowed?YesYes
Income limits?80% of AMI80% of AMI
Boarder income allowed?YesYes

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.

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 mortgage insurance requirements, 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.
  • 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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