HomeReady and Home Possible Mortgage Options

Looking for a mortgage option that lets you make a small down payment? You don’t necessarily have to rely on government-backed loans to take advantage of low money down home financing. The Fannie Mae HomeReady and Freddie Mac Home Possible loans are two options worth considering, especially if you want to make a low down payment without having to pay extra fees or higher interest rates.

HomeReady & Home Possible Overview

Fannie Mae and Freddie Mac are two large enterprises that buy mortgages from lenders. Although they are sponsored by the government, they are not government-run in the way other agencies are (like the FHA or USDA, for example.) Fannie Mae and Freddie Mac also have their own mortgage products that they offer through lending institutions; the HomeReady and Home Possible programs are two examples.

The HomeReady program from Fannie Mae is designed to help low-income borrowers obtain affordable home financing while simultaneously helping lenders feel confident in doing business with these often under-served populations.

The Home Possible program from Freddie Mac is quite similar to the HomeReady program; however, there are a few key differences. Namely, with Home Possible, borrowers will most likely need a higher credit score. There are also a few differences when it comes to income guidelines, but these can depend on your location.

Here’s a simple breakdown of the HomeReady and Home Possible loan features (key differences in bold type):

Fannie Mae’s HomeReady Loan

• Minimum downpayment 3% (97% LTV)
• Minimum credit score 620
• Homeownership education course required if all borrowers are first time home buyers
• Supplemental rental/boarder income allowed
• Available for purchase or refinance
• Cash for down payment and/or closing costs can come from multiple sources such as gifts and grants
• Cancellable mortgage insurance premium (may be canceled once borrower reaches 80% LTV)
• Debt-to-income ratio up to 50%
• Available for first time and repeat buyers
• Available for primary residences only
• Possible Income limits apply based on location
• Borrower can own up to one other financed property
• Non-occupant co-borrowers allowed

Freddie Mac’s Home Possible Loan

• Minimum down payment 3%
• Minimum credit score 660
• Homeownership education course required if all borrowers are first time home buyers
• Supplemental rental/boarder income allowed
• Available for purchase or refinance
• Cash for down payment and/or closing costs can come from multiple sources such as gifts and grants
• Cancellable mortgage insurance premium (may be canceled once borrower reaches 80% LTV)
• Debt-to-income ratio up to 43%
• Available for first time and repeat buyers
  Available for primary residences only
• Possible income limits apply based on location
• Borrower can own up to one other financed property
• Non-occupant co-borrowers allowed

Disclaimer: Please note that underwriting guidelines are subject to change and may have already changed by the time you are reading this post. Always check with a mortgage loan originator for the most accurate and updated information on loan requirements.

Comparing HomeReady & Home Possible with Government Loans

For many years, FHA loans were the most popular choice for low money down mortgages. Now that Fannie and Freddie have developed their own versions of low money down conventional loans, more borrowers are choosing these over the government-backed options. Here’s why:

Lower Down Payment
FHA loans may offer lower down payments, but even the low 3.5% down requirement is higher than both Fannie and Freddie’s 3% minimum.

Higher Mortgage Insurance
With an FHA loan, borrowers pay two separate mortgage insurance premiums: an upfront premium that is paid at closing, and an annual premium that is typically divided up into monthly payments. The annual premium may be canceled, but only if the borrower makes a higher down payment (10% or more) and reaches 80% LTV. With Fannie and Freddie’s respective programs, there is only one private mortgage insurance premium that must be paid, and it is cancellable once the borrower reaches 80% LTV.

Likewise, government-backed mortgages, like the USDA and VA loans, have their own special features and restrictions. VA loans are only available to qualified military, veterans, or surviving spouses, and USDA loans are only available to borrowers who meet certain income limits and are financing a home in a qualified geographical area.

Who Would Be a Good Candidate for HomeReady or Home Possible?

The Fannie Mae HomeReady or Freddie Mac Home Possible loans might be a good choice for you if…

• You do not have a lot of money for a down payment
• You have moderate- to low-income
• Your credit score is 620 or higher
• You need to use a parent or another non-occupant as a co-borrower
• You plan to have roommates/boarders and want to use their rent toward qualifying income
• You currently have another financed property
• Your parents or other relatives are giving you money for your down payment, or you are the recipient of a homeownership grant, or other downpayment assistance program
• Your debt-to-income ratio is 50% or lower

If you have questions about the HomeReady or Home Possible mortgage programs, don’t hesitate to reach out to Luxury Mortgage or another trusted financial professional.

Resources
Fannie Mae HomeReady
Freddie Mac Home Possible