If you want to buy a home without a large down payment, there are plenty of government-backed programs available. But the opportunities don’t end there. Fannie Mae and Freddie Mac also offer homebuyers low down payment options.
Both Fannie Mae’s HomeReady and Freddie Mac’s Home Possible loans allow you to buy a house with just 3% down and lenient credit requirements.
Although similar on the surface, there are some key differences that you should be aware of when considering the HomeReady or Home Possible programs. Let’s dive into the details below.
Click here to check your eligibility for a low down payment home loan (Nov 21st, 2024)
Fannie Mae’s HomeReady vs Freddie Mac’s Home Possible
The HomeReady and Home Possible programs each allow you to make a small down payment on your home purchase. The programs have slightly different requirements.
Perhaps the most significant difference is each program’s credit score requirements — a 620 score for HomeReady and a 660 score requirement for Home Possible — which could significantly impact your eligibility.
What is a HomeReady loan?
HomeReady loans are offered by Fannie Mae to both first-time homebuyers and repeat buyers with credit scores of at least 620.
The program offers flexible down payment requirements. You’ll only need to put down 3% on a single-family home and those funds can be entirely composed of a gift or grant. Since some home loans require the borrower to come up with the funds for a down payment on their own, this is a great option, especially for many first-time buyers.
The income requirements for the HomeReady loan are also relatively flexible. Beyond your regular income, you can also use other forms of income to qualify for the loan. This can include a co-signer’s income and any income from a roommate or boarder. However, your income cannot exceed more than 80% of the median income in your area.
Who should consider a HomeReady loan?
Ultimately, the HomeReady loan program is a good option for borrowers with a credit score of at least 620 who earn less than 80% of the area’s median income. If you have the means to come up with a 3% down payment with any kind of assistance available, then the ability to add a renter’s income could make buying a home a real possibility.
Check to see if you qualify to buy a home with the HomeReady Mortgage. Start here (Nov 21st, 2024)
What is a Home Possible loan?
Freddie Mac offers Home Possible loans to both repeat and first-time homebuyers with credit scores of at least 660. If you don’t have a credit score at all due to a lack of credit history, you may still be able to qualify based on ‘alternative’ credit data. But the required minimum down payment will jump from 3% to 5%.
Importantly, you can receive the funds for a Home Possible loan down payment as a gift or from a grant. As long as you have the funds at closing, Freddie Mac is willing to accept them.
You’ll need to make less than 80% of the area’s median income to qualify. If your income is on the lower end of that scale, you can use the income you plan to receive from a renter to boost your qualifications.
Who should consider a Home Possible loan?
The Home Possible loan program is a great option for those with a credit score of 660 or highter who want some flexibility on where to source their down payment from.
Check your Home Possible eligibility. Start here (Nov 21st, 2024)
Comparing the HomeReady and Home Possible programs
Let’s see how these two options stack up against each other.
Borrower contribution
If you are buying a single-family home, both programs have the same requirements. You’ll need a 3% down payment and you can source those funds from a gift or grant.
However, if you are buying a multi-family property, things get more complicated.
With Fannie Mae’s HomeReady program, you’ll need to contribute at least 3% of the purchase price if you are buying a multi-family unit. That means you’ll need to come up with those funds without outside help.
But Freddie Mac imposes no requirements of this kind, even for a multi-family unit. You’ll still be able to move forward with the purchase without personally contributing to the down payment.
Occupancy
With either the HomeReady or Home Possible program, borrowers must occupy the property as a primary residence.
There is an exception: You can become a co-borrower through either loan program without the intention of living in the property. Although one of the borrowers must live on-site, it is not required that both borrowers move in.
Household income
As a borrower with these programs, you must make 80% or less of the area’s median income. You can check out that limit for your area using the tools offered by Fannie Mae and Freddie Mac.
Both programs will allow you to count boarder income for the loan application.
Fannie Mae takes your household income flexibility a step further by considering non-borrower income as a compensating factor. For instance, the income of a friend or family member living in the house could help you qualify, even if that person isn’t on the loan with you. This small boost might make the difference in enabling some applicants to qualify for a home loan.
Homebuyer education
Fannie Mae and Freddie Mac each require homebuyers to complete an educational course about homeownership if all borrowers on the loan are first-time buyers.
Freddie Mac offers a free option for this educational requirement. The Fannie Mae class costs $75.
If you are working with Freddie Mac, you can skip it if one of the borrowers has owned a home in the past.
HomeReady vs. Home Possible comparison chart
| HomeReady | Home Possible | |
| Minimum down payment requirement | 3% | 3% |
| Down payment gifts and grants allowed | Yes | Yes |
| Minimum credit score | 620 | 660 |
| First-time homebuyer requirement | No | No |
| Income limitations | Yes – limited to borrowers that earn 80% or less of the area’s median income | Yes – limited to borrowers that earn 80% or less of the area’s median income |
| Boarder/renter income allowed | Yes | Yes |
| Mortgage insurance required? | Yes – must reach 80% LTV ratio to remove | Yes – must reach 80% LTV ratio to remove |
| Homebuyer education requirement? | Yes | Yes |
Should you get a HomeReady or Home Possible loan?
The good news is that both the HomeReady and Home Possible loans offer homebuyers a low down payment option.
Although the benefits of the programs are similar, each has slightly different requirements. Take some time to consider which loan has requirements that you can meet.
For example, consider your credit score. If you have a credit score of more than 660, then the Home Possible program might be a better fit. But if your credit score falls between 620 and 660, then the HomeReady loan is the right choice.
Click here to check your eligibility for a low down payment home loan (Nov 21st, 2024)
Other low down payment loan options
Keep in mind that there are other low down payment options to consider. These include:
- FHA loans. The Federal Housing Administration offers home loans to borrowers with credit scores as low as 500 (if they make a 10% down payment). If you have a credit score of 580, you may only need to put down 3.5%.
- USDA loans. The U.S. Department of Agriculture offers home loans to qualifying borrowers in rural areas the option to purchase a home with 0% down.
- VA loans. The U.S. Department of Veterans Affairs offers qualifying veterans the opportunity to purchase a home with 0% down.
The bottom line: HomeReady vs Home Possible
Both the HomeReady and Home Possible loans offer homebuyers the chance to purchase a home with as little as 3% down. One of the key features is that these funds can be a gift or grant to help you achieve your homeownership goals.
As a homebuyer, you have access to many different low down payment options. Take some time to find the best choice for your situation. If you are ready to apply for a HomeReady or Home Possible loan, don’t wait another day.
Click here to check your eligibility for a low down payment home loan (Nov 21st, 2024)
