HomeReady and Home Possible: Loans With 3% Down

For years, the Federal Housing Administration was the king of the low-down-payment mortgage mountain. Now, Fannie Mae and Freddie Mac, the government-sponsored enterprises that provide capital to the mortgage market, are designing loan products for hopeful home buyers with skinny savings accounts.

With Fannie Mae’s HomeReady and Freddie Mac’s Home Possible, a 3% down payment — or what lenders refer to as 97% loan-to-value, or LTV — is available on so-called conventional loans. Conventional loans are the loan products most often issued by lenders.

Fannie Mae HomeReady

Jonathan Lawless, vice president for product development and affordable housing at Fannie Mae, says today's low-down-payment FHA loans can be "expensive," with upfront and ongoing mortgage insurance premiums that last for the life of the loan. So Fannie Mae decided to build a competitive low-down-payment loan product of its own.

There are income limits wrapped into the HomeReady program, except in designated low-income neighborhoods. Fannie’s standard 97 LTV loan doesn’t have such restrictions, if at least one borrower is a first-time home buyer.

Though the FHA is known for its relaxed lending requirements — including a credit score minimum of 580 — Fannie’s HomeReady has a little wiggle room of its own. It allows parents to be co-borrowers — without residing in the home — and payments from a rental property can be considered as an income source. Borrowers can also have up to a 50% debt-to-income ratio and a FICO score as low as 620.