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Federal Housing Administration loans, which only require a 3.5% down payment, can be a lifeline for borrowers with limited savings and blemished credit. The wrong side? They come with expensive upfront and ongoing fees mortgage insurance premiums.
But if your credit score is 620 or higher, you could save money with a HomeReady, Standard 97, HomeOne, or Home Possible mortgage. Not only will you save on mortgage insurance, these loans only require a 3% down payment.
Fannie Mae’s HomeReady Mortgage
You are eligible for a HomeReady mortgage from Fannie Mae, one of the two government-sponsored entities that support the U.S. home finance system, if you have:
You can use this loan to buy or refinance a single-family home, and you don’t have to be a first-time buyer. You can even get help with the payment of a deposit donation, grant or Community Seconds loan government agency, non-profit organization or employer. With 3% down payment, you need to take out a fixed rate loan, not a adjustable rate mortgage.
You will have to pay for private mortgage insurance (PMI) if you deposit less than 20%, but you can cancel it once you have 20% equity. With a FHA loan, you will have to pay monthly mortgage insurance premiums for at least 11 years, if not during the term of the loan, as well as an initial mortgage insurance premium of 1.75% of the loan amount. A HomeReady loan could save you thousands or even tens of thousands of dollars on mortgage insurance.
A unique aspect of a HomeReady mortgage is that if you’ve received income from a resident for at least nine of the past 12 months, you can count it up to 30% of the income you need to qualify for your mortgage. mortgage loan, assuming income will continue. You can also use the projected secondary income on the financed property to help you qualify.
A HomeReady mortgage could also be a good option if you have a parent who is willing to co-borrower but will not be living with you. Their income (and debts) can be added to yours to help you qualify if you can’t on your own. But it could also cause you to exceed the income limit to qualify for the HomeReady program, in which case you can try a Standard 97 loan, described below.
Remember, however, that a co-borrower assumes the same risks and responsibilities as you do for the loan, so this is a major issue.
Fannie Mae Standard Home Loan 97
Fannie Mae also offers a Standard 97 loan, where 97 is the percentage of the home’s value that you will finance. In other words, this is another 3% mortgage. To be eligible, you must be a first-time home buyer, which means you haven’t owned a home in the past three years. You can also use this loan to refinance a mortgage held by Fannie Mae.
As with a HomeReady loan, you can hire a non-occupant borrower to help you qualify. The programs also have the same credit score, PMI, and DTI requirements. Again, you will need to finance a single family home using a fixed rate loan.
Standard 97 loans have no income limit, so they can be a good option if your income is too high for a HomeReady loan. down payment assistance in the form of a donation, grant or Community Seconds loan. However, a Standard 97 loan does not allow you to use boarder income or incidental housing income to qualify.
Possible mortgage on Freddie Mac’s house
Freddie Mac’s Home Possible Mortgage is similar to Fannie Mae’s HomeReady Mortgage. It is designed to help people with very low to moderate income buy a home.
Like HomeReady, your income can reach 80% of the region’s median income. In low income census tracts, there is no income limit. The Home Eligibility tool for possible income and assets can help you see if you might qualify.
Another unique feature of this loan is that it allows you to apply what is called “sweat equity” up to 100% of your down payment and closing costs. Freddie mac defines sweat equity such as “materials supplied or labor performed by a borrower before a property closes.” The value of the work they provide and the money they spend on materials to renovate the house are considered to be personal funds. HomeReady loans also allow for sweat equity, but only if you contribute at least 3% of your own funds.
The Home Possible program does not have a minimum credit score or maximum DTI requirement, but your credit score, combined with the rest of your borrower profile, must be acceptable according to Freddie Mac’s. mortgage subscription algorithms. You will also need to pay PMI until you have 20% equity. What else, adjustable rate mortgages are permitted under this program.
If you only pay 3%, you must use the loan to buy a single unit property. You will need a larger down payment if you want to buy a duplex, for example. Like Fannie Mae’s 3% down payment options, you can apply with a non-occupant co-borrower to help you qualify for a Home Possible mortgage.
Freddie Mac HomeOne Loan
Freddie Mac’s HomeOne loan is equivalent to Fannie Mae’s Standard 97 mortgage. There are no income restrictions and at least one borrower must be a first-time buyer, defined as someone who has not owned a home in the past three years.
The first-time home purchase requirement doesn’t apply if you’re refinancing, of course. But the loan you are refinancing must be owned by Freddie Mac.
As with HomePossible, this loan program does not have a minimum credit score or maximum DTI requirement, but your overall financial profile must be accepted by Freddie Mac’s underwriting system.
You can use a HomeOne loan to finance a single family property, such as a house or a condo. The minimum down payment is 3%, but you can get down payment assistance in the form of an Affordable Seconds gift, grant, or loan, which is similar to Fannie Mae’s Community Seconds.
You need to get a fixed rate mortgage; MRAs are not allowed. You will need to hold the PMI until you have 20% equity.
These four low down payment mortgages are for borrowers who will be living in the home. You must finance a primary residence, not a secondary residence or investment property, to benefit from these programs.
With loan programs like these, especially in combination with down payment assistance, not having what you can afford to pay up front shouldn’t be a problem if you want to own a home. With a stable income, limited debt and good credit, not to mention low interest rates, it’s easier than ever to buy a home.