In 2015, the mortgage industry witnessed a game-changing moment with the introduction of low down payment options for conventional loans. The emergence of HomeReady and Home Possible loans made homeownership dreams more attainable for those with low and moderate incomes. Now, as we step into 2024, these remarkable loan programs continue to offer the possibility of securing a conventional mortgage with as little as a 3% down payment. In this guide, we'll explore the ins and outs of HomeReady and Home Possible loans, shedding light on their eligibility criteria, benefits, and considerations. Plus, discover how Done with Debt can empower you to take the first step towards homeownership.
Understanding HomeReady and Home Possible Loans: HomeReady and Home Possible are mortgage programs created by Fannie Mae and Freddie Mac, respectively. These government-controlled entities play a pivotal role in the mortgage market by designing loan products that lenders can offer. The key distinction lies in their ability to serve low-to-moderate-income home buyers while being categorized as conventional loans—a preference for most lenders. These programs aim to provide opportunities similar to FHA and USDA loans but within the conventional lending framework.
Qualifying for HomeReady or Home Possible Loans: While both programs are similar, they have slight differences in qualification criteria:
Credit Scores: HomeReady accepts credit scores as low as FICO 620, while Home Possible requires a minimum credit score of 660 for home purchases and 680 for mortgage refinancing.
Debt-to-Income Ratio (DTI): HomeReady permits a DTI of up to 50%, with some restrictions, while Home Possible seeks a DTI of 45% or lower.
Down Payment: Both programs allow down payments as low as 3%, and borrowers can use cash gifts and grants to cover the down payment, without a specific minimum requirement for personal funds.
Properties Financed: Both programs fund single-family homes, one- to four-unit properties, and manufactured housing.
Homeownership Education: Completing a homeownership education course is mandatory for first-time home buyers under both HomeReady and Home Possible, which can often be done online.
Refinance: Both programs offer mortgage refinancing options for eligible homeowners.
Tip: These programs offer unique flexibility, allowing parents or co-borrowers to guarantee the mortgage even if they won't reside in the home. Roommates who contribute rent can also be included in the borrower's qualifying income. Nontraditional credit, such as rental payment history, may be considered when a borrower lacks a credit score.
Income Limits for HomeReady and Home Possible 2024: Both Fannie Mae's HomeReady and Freddie Mac's Home Possible have income limits to help determine borrower eligibility. These limits typically cap borrower annual income at 80% of the median income for a specific area. You can use a property eligibility tool to find income limits for a particular address.
HomeReady and Home Possible vs. FHA Loans: While HomeReady and Home Possible, like FHA loans, aim to make homeownership accessible, they have distinct differences. These programs are not exclusive to first-time home buyers but are designed for financing primary residences, not second homes or investment properties. Some key distinctions include:
Pros and Cons of HomeReady and Home Possible Loans: Pros:
Down payments as low as 3%.
The option to eliminate mortgage insurance after achieving 20% equity.
Flexibility to choose an adjustable-rate mortgage.
Cons:
A higher credit score requirement compared to FHA loans.
Income limits may apply.
As 2024 unfolds, the dream of owning a home with a minimal 3% down payment remains within reach through HomeReady and Home Possible loans. These programs offer a path to homeownership for individuals with low and moderate incomes. To embark on this journey, explore the eligibility criteria, weigh the pros and cons, and, most importantly, take action. Done with Debt is here to support you every step of the way, turning homeownership aspirations into reality.
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