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How to get a 3% down mortgage in 2024
The mortgage industry was transformed in late 2015 when low down payments became available for conventional loans.
That was the year two ground-breaking loan programs, HomeReady and Home Possible, opened the doors to home buyers with low and moderate incomes to qualify for a conventional mortgage with down payments as low as 3%.
Now, nearly a decade later, here's how the two programs operate and what it takes to qualify for either of these extraordinary low-down-payment mortgages in 2024.
Read more: How to buy a house in 2024
What are HomeReady or Home Possible loans?
HomeReady and Home Possible are two similar mortgage offerings developed by Fannie Mae and Freddie Mac, respectively. The two government-controlled companies provide capital to the mortgage market by structuring loan products that mortgage lenders sell. The mortgages are subsequently purchased by Fannie and Freddie and some are repackaged as institutional investments.
So, while serving low-to-moderate-income home buyers with limited savings, just as FHA and USDA loans do, HomeReady and Home Possible loans are considered conventional loans, which most lenders prefer to make.
Read more: How much house can I afford?
How to qualify for a HomeReady or Home Possible loan
While nearly identical, the two loan programs have minor qualification differences.
Credit scores: HomeReady allows credit scores as low as FICO 620. Home Possible looks for a minimum credit score of 660 for home purchases and 680 for mortgage refinancing.
Debt-to-income ratio: HomeReady allows a DTI of up to 50%, with certain restrictions. Home Possible looks for a DTI of 45% or less.
Down payment requirements: Both programs allow down payments of as little as 3%. Borrowers can apply unlimited cash gifts and grants to the 3% down payment and aren't held to a minimum amount to be drawn from personal funds.
Properties financed: Both mortgage programs allow the funding of single-family homes, one- to four-unit properties, and manufactured housing.
Homeownership education: HomeReady and Home Possible require first-time home buyers to complete a homeownership education course which can be completed online.
Refinance: Both HomeReady and Home Possible offer mortgage refinancing to qualified homeowners.
Tip: These programs also offer unique flexibility. Parents or other co-borrowers are allowed to guarantee the mortgage though they won't live in the home. Roommates who pay rent can also be included in a borrower's qualifying income. And nontraditional credit, such as rental payment history, can also be considered when a borrower has no credit score.
Read more: Best mortgages for first-time home buyers
HomeReady and Home Possible 2024 income limits
Fannie Mae's HomeReady and Freddie Mac's Home Possible programs have income limits that help qualify borrowers. Both limit borrower annual income to 80% of an area's median income.
A property eligibility tool can provide the income limits for a specific address.
HomeReady and Home Possible vs. FHA loans
These two conventional mortgages, as well as FHA loans, are designed to provide an opportunity for homeownership to those who might not qualify otherwise. The programs are not restricted to first-time home buyers, but are meant to finance a primary residence, not a second home or investment property.
Some of the key differences between HomeReady and Home Possible as compared to FHA loans include:
Read more: Understanding FHA mortgage insurance
Pros and cons of HomeReady and Home Possible loans
Pros
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Down payments as low as 3%.
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Private mortgage insurance can be eliminated after 20% equity in the home is achieved.
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You have the option to use an adjustable-rate mortgage.
Cons
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A higher credit score hurdle than FHA loans.
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Income limits may apply.
HomeReady and Home Possible FAQs
What's the difference between Home Possible and HomeReady?
Home Possible and HomeReady are both programs that allow borrowers to qualify for conventional loans with just a 3% down payment. The difference is that the Home Possible program is offered by Freddie Mac, and the HomeReady program is provided by Fannie Mae. These are two government-sponsored enterprises (GSEs). They also have slightly different eligibility requirements: Home Possible requires a 660 credit score and 45% DTI from buyers, and HomeReady looks for a 620 credit score and 50% DTI.
Is HomeReady for FHA or conventional loans?
HomeReady is a Fannie Mae program for conventional loans, and you can qualify with a 3% down payment. FHA loans are insured by the Federal Housing Administration, and you'll need a 3.5% down payment. Both are strong options for first-time home buyers.
What is the minimum credit score for Home Possible?
Freddie Mac's Home Possible program typically requires a 660 credit score for people buying a home and 680 for those refinancing.
