If you’re a first time buyer and ready to buy a home but don’t have a lot saved for a down payment, the Fannie Mae HomeReady® and Freddie Mac Home Possible® mortgage are a great option. Both programs require as little as 3% down and offer looser lending requirements than most other loan types. So it can be ideal for many first-time buyers who need a hand to purchase a new home. You can use alternative funding sources like gifts even co-borrowers, regardless of residency, can also be included in your application, making it a flexible and accessible option for many buyers.
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What is a HomeReady and Home Possible loan?
Both programs were designed to simplify the process of securing low-down-payment mortgages at current market rates, primarily aimed at individuals with modest incomes. These loans open the door to a minimal 3% down payment, which makes it attractive compared to other programs. One of the standout attributes of the HomeReady® Home Possible® Program is its adaptability when it comes to income sources for the loan application. It not only permits co-borrowers, whether they reside with you or elsewhere (referred to as non-occupant co-borrowers), but also allows you to incorporate documented income from tenants or boarders residing within your home. These unique provisions can be the game-changer for families who might otherwise face loan rejection.
Why apply for a HomeReady or Home Possible loan?
Applying for a HomeReady or Home Possible loan can be a smart choice for several reasons:
Low Down Payment: These programs typically require a down payment as low as 3%, making homeownership more accessible, especially for those with limited savings.
Competitive Interest Rates: Both HomeReady® and Home Possible® loans offer competitive interest rates that are in line with current market rates, helping borrowers save money over the life of their mortgage.
Flexible Income Sources: These programs are flexible when it comes to income sources. You can include income from co-borrowers, non-occupant co-borrowers, and even documented income from renters or boarders in your home. This flexibility can be a game-changer for those with diverse income sources.
Affordable Housing: These loans aim to support low and moderate-income individuals and families in their quest for affordable housing, contributing to broader access to the housing market.
Reduced Credit Score Requirements: While a good credit score is still important, these programs may have more lenient credit score requirements compared to some other mortgage options, making it accessible to those with less-than-perfect credit.
Educational Resources: Fannie Mae and Freddie Mac, which administer the HomeReady® and Home Possible® programs, often provide educational resources and support to help borrowers understand the homebuying process and improve their financial literacy.
Support for First-Time Homebuyers: These programs are particularly beneficial for first-time homebuyers who may be navigating the complex world of real estate for the first time, offering assistance and guidance.
How does a HomeReady or Home Possible loan work?
To get a HomeReady® or Home Possible® loan, you’ll have to fall within the program’s income limits based on the area you’re looking to purchase in, take a short online class about homeownership, and have decent credit.
The basic requirements include:
You cannot earn more than 80% of your Census tract’s median income
You need a FICO score of at least 620
The home must be your primary residence
You should have a debt-to-income ratio (DTI) that’s no higher than 50%. This is more lenient than most other mortgage programs
You must agree to complete a 4-hour to 6-hour online home ownership education course
How to qualifies for a HomeReady or Home Possible Loan?
The HomeReady and Home Possible loan programs are mortgage programs designed to make homeownership more accessible, particularly for low to moderate-income borrowers. These programs are offered by Fannie Mae (HomeReady®) and Freddie Mac (Home Possible®), which are government-sponsored enterprises in the United States. While the specific eligibility requirements can vary depending on the lender and any updates to the programs, here are some general guidelines:
HomeReady Program Requirements
Income Requirements: Borrowers must meet certain income limits, which are typically set at or below the median income for their area. Income limits can vary based on the location of the property.
Credit Score: Borrowers are generally required to have a credit score of at least 620.
Down Payment: The program allows for a minimum down payment of as low as 3% of the purchase price. The down payment can come from various sources, including gifts.
Homebuyer Education: Completing a homeownership education course is often required for first-time homebuyers.
Occupancy: The property must be the borrower’s primary residence.
Loan-to-Value Ratio (LTV): There are specific requirements regarding the LTV ratio, which may vary depending on factors like credit score and the number of units in the property. Typically 97% LTV for a single unit
Home Possible Program Requirements
Income Requirements: Similar to HomeReady, the Home Possible program also has income limits, which can vary by location and the number of people in the household.
Credit Score: A minimum credit score of 660 or higher is often required, lower scores with additional compensating factors may be accepted.
Down Payment: The program allows for a down payment as low as 3%. Sources of down payment funds may include gifts.
Homebuyer Education: Completing a homebuyer education course is typically required, especially for first-time homebuyers.
Occupancy: The property must be the borrower’s primary residence.
LTV Ratio: The maximum LTV ratio is 97% based on the specific characteristics of the loan and the borrower.
Ultimately, applying for a HomeReady® or Home Possible® loan can be a great choice if you are looking for an affordable way to enter the housing market and need flexibility in terms of income sources and credit requirements. The program’s numerous benefits, including low down payment, competitive interest rates, and flexible approval, make it an attractive choice for achieving the dream of homeownership. To determine your eligibility and explore your options, consult with one of our mortgage advisors to start the process of becoming a homeowner.
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