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Homeownership is the American dream, but the perception among many first time home buyers is that it’s difficult to buy a home today. Myth busted: There are several programs out there that specifically meet the needs of today’s home buyers. In this article we’re going to cover two: the Fannie Mae HomeReady® and Freddie Mac Home Possible® programs.
HomeReady and Home Possible are loan programs with lower down payment requirements and more lenient credit requirements than standard conventional loans. These loan programs offer options and flexibility for borrowers outside of government programs like FHA loans.
Read on to learn all about these Fannie Mae and Freddie Mac loans for low to moderate income buyers and the eligibility requirements for each program.
HomeReady Mortgage Loan
The Fannie Mae HomeReady mortgage program is an affordable and flexible mortgage for first time and repeat home buyers to purchase residential properties with a down payment as low as 3%.
With the HomeReady loan, you will need to pay for private mortgage insurance (PMI) if your down payment is less than 20%, just like a conventional mortgage. But HomeReady PMI premiums are reduced for eligible borrowers, and premiums are based on your credit score and loan to value (LTV) ratio, which is the percentage of the home’s value being financed. After you build up equity and reach an 80% LTV ratio, you can request to cancel your PMI, and this will lower your monthly payments.
Flexibility is a big benefit of the HomeReady program, as it allows non-occupying co-borrowers. For example, parents who won’t be living in the home can be co-borrowers on the mortgage to help their adult children purchase a home, but income limits may apply.
Additional income sources are also considered, such as future rental or boarder income from renting out space in the home you’re buying. Gifts from friends and family are also permitted to help with your down payment and closing costs.
Is the HomeReady Loan Right for You?
To determine your eligibility for the HomeReady program, you must meet these criteria:
- You have a credit score of 620 or higher (but a 680 or higher credit score may get you better pricing on the loan).
- You don’t currently own any other properties in the country.
- If you are a first time buyer, you’ll need to complete a Fannie Mae homeownership education course, which can be done online for free.
- Your income must be equal to or less than 80% of your area’s median income (AMI). Enter your address on Fannie Mae’s Area Median Income Lookup Tool to see your specific location’s HomeReady income limit.
Home Possible Mortgage Loan
Freddie Mac’s Home Possible mortgage program has many similarities with Fannie Mae’s HomeReady program. This includes a minimum 3% down payment and discounted PMI, which is removed after your loan’s principal balance falls to 80% of the home’s value.
The Home Possible program also allows flexibility for non-occupying co-borrowers and down payment sources, whether receiving funds from family, an employer payment assistance program, secondary financing, or sweat equity. And future boarder or rental income can also be considered a source of income on your loan application.
The Home Possible program differs from the HomeReady program because it has a higher minimum credit score requirement. However, it offers an option for borrowers who don’t have a credit score due to lacking a credit history, but that option comes with a higher minimum down payment requirement.
Is the Home Possible Program Right for You?
To determine your eligibility for the Home Possible program, you must meet these criteria:
- You have a 660 or higher credit score—but a no credit score option is available if you are making a 5% down payment and taking the home buyer education course (see below).
- If you are a first time home buyer or have no credit score, you must complete Freddie Mac’s free, online CreditSmart® Homebuyer U course.
- Your income must be equal to or less than 80% of your location’s AMI. You can enter your address on Freddie Mac’s Home Possible® Income and Property Eligibility Tool to see your area’s specific limit.
LLPA Now Waived on HomeReady and Home Possible Loans
New Way Mortgage is pleased to announce that, effective immediately, we can now offer both Programs—HomeReady and Home Possible—with waived loan level pricing adjustments (LLPA). This means you can get even better mortgage rates, lower PMI premiums, and reduced closing costs, all because you will not need to pay LLPA fees.
An LLPA is a risk-based fee assessed to mortgage borrowers with a conventional mortgage and is typically paid through higher mortgage rates. LLPAs vary by borrower and are based on factors such as LTV, credit score, debt to income ratio (DTI), occupancy, and property type.
“If you’re a first time home buyer who’s looking to make a 3% down payment and your income is 80% of the area median income of where you want to buy, your HomeReady or Home Possible loan pricing, interest rates, and closing costs just got a whole lot better,” said Aaron Clowes, founder and CEO of New Way Mortgage.
Watch the video below to learn more about how New Way Mortgage can provide better pricing on your HomeReady or Home Possible loan:
If you’re looking to finance a home purchase in the greater Sacramento area, the team at New Way Mortgage can help. We have access to competitive interest rates and a variety of home loan programs, including HomeReady and Home Possible, as well as conventional loans, jumbo financing programs, VA loans, and FHA loans.
Visit our website at newwaymortgage.com or call or text us today at 916-465-6639, and let us match you with the mortgage that makes the most sense for your unique home buying situation.