Fannie Mae, along with Freddie Mac, are the two largest buyers on home loans in the country.

In order to compete with FHA loans, which requires just a 3.5% down payment, Fannie Mae created the HomeReady loan program requiring just a 3% down payment.

In this article, we’ll explore the HomeReady loan program to see how it stacks up against other low down payment loan options.

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What is the HomeReady program?

The HomeReady program was created by Fannie Mae to help low-income borrowers by offering home loans requiring just a 3% down payment, which is lower than FHA loans which require 3.5% down.

In order to qualify your income cannot exceed 100% of the area median income (AMI). Visit the Home Ready website to check the income limits in your area.

In addition to having a low down payment, HomeReady loans have a low credit score requirement of 620. The credit requirement is lower than other types of conventional loans making them easier to qualify for.

HomeReady Loan Requirements

• 620 credit score
• 2 years of stable employment history
• Alternative credit lines can be considered
• Income cannot exceed 80% of median income
• Cannot have another open Home Ready mortgage
• Attend 4-6 hours of homeownership education courses

What’s the Difference between HomeReady & FHA Loans?

FHA loans are government-backed loans, while HomeReady loans are issued by insured by private mortgage insurance companies and have lower insurance rates.

They do have a couple of similarities such as a low down payment and they both target low-income home buyers with a maximum debt-to-income ratio of 50%. They also both allow for the down payment to be a gift from a friend or relative.

Key differences between HomeReady & FHA

• Down payment requirements – HomeReady loans have the lowest down payment requirement of any type of home loan at just 3%. FHA loans require a slightly higher down payment of 3.5% as long as you have a minimum 580 credit score. If your score is between 500-579 you will need 10% down.
• Credit score – FHA loans have the lowest credit requirements of any home loan available. With a minimum 500 credit score, a 10% down payment is needed. Borrowers with a 580+ credit score will need a 3.5% down payment. HomeReady loans have a higher credit score requirement of 620.
• Income limits – There are no restrictions on the amount of income you must have with FHA loans. HomeReady loans have strict income limits that require borrowers’ income to not exceed 100% of the area median income (AMI).
• Income verification – One of the key differences between the two types of loans is that HomeReady allows you to use income from non-borrowers who reside in the property from relatives or individuals who are renting rooms. FHA loans will only consider income from borrowers and co-borrowers who are on the loan application.
• Mortgage insurance – HomeReady loans are a type of conventional loan that requires monthly PMI payments until the loan-to-value ratio reaches 78%, at which point PMI is no longer required. FHA loans require two types of mortgage insurance premium (MIP), a one time up-front MIP payment equal to 1.75% of the loan amount, plus an ongoing monthly MIP payment. The length of time MIP is needed depends on the down payment amount. Borrowers with less than 10% down will have MIP payments for the life of the loan. Borrowers with at least 10% down will have to carry MIP for 11 years.
• Credit history – Only traditional lines of credit that appear on your credit report can be used to qualify for an FHA mortgage. HomeReady loans let lenders use non-traditional credit lines such as rental payments to help borrowers with limited credit history qualify.