Home Ready vs Home Possible,
which is the better option for you?
Home Ready loans
A Home Ready mortgage is a home loan financed through Fannie Mae, (Federal National Mortgage Association). This loan is intended to better assist borrowers who have a lower credit score, lower income and are looking to own a home.
Qualified buyers only need a 3% down payment. To compare, that is less than the 3.5% down payment minimum required for loans funded by the Federal Housing Administration (FHA).
Just like other conventional mortgages, if you put less than a 20% down payment on a Home Ready loan, you will pay for private mortgage insurance (PMI). PMI premiums however are reduced for those Home Ready-eligible borrowers. This helps keep the monthly payment lower than a standard conventional loan.
A few things to know about PMI:
- Your PMI premium varies based on your credit score and loan to value ratio
- Once your loan to value ratio reaches 80%, you can request to cancel your PMI
- There is an automated cancellation once you reach a 78% loan to value ratio
Home Ready loans are ideal for:
- First time home buyers
- Repeat buyers
- Someone who’s credit score is 620 or higher
- A buyer with limited cash for a down payment
- Buyers who earn a salary less than or equal to 80% of the area median income
- Someone who has supplemental income from a tenant
Home Ready Loans Criteria
- A minimum credit score of 620
- Note that your income can be lower, but you need to exceed the credit score required in order to be eligible.
- You don’t own another property in the country
- You attend the homeowner education courses required
What is a home possible loan?
A Home Possible mortgage is ideal for those with a low income but can afford a monthly mortgage payment and minimal down payment upfront. These mortgages are designed for buyers with a low income or first time home buyers. You however don’t have to be a first time home buyer to apply for this program.
Home Possible Advantages:
- Own a home without having to put down a 20% down payment
- Apply sweat equity for up to the entire amount of the Home Possible down payment and closing costs
- Non-occupying co-borrowers can contribute to borrower funds on one-unit properties
- Cancel mortgage insurance upon reaching 20% equity which reduces your monthly mortgage payment. It also could save you thousands of dollars over the life of the loan.
Along with the small down payment requirement of 3%, Home Possible offers more options to responsibly increase homeownership for more of your borrowers. Co-borrowers who don’t actually live in the home can be included for a borrower’s one-unit residence, borrowers are permitted to have another financed property, and more –all with competitive pricing and the ease of a conventional mortgage.
|Home Ready||Home Possible|
|Minuimum down payment||3%||3%|
|Minimum credit score||620||660|
|Mortgage Insurance requirement||Yes, until 80% LTV radio is reached Reduced PMI with less than a 10% down payment||Yes, until 80% LTV radio is reached Reduced PMI with less than a 10% down payment|
|First-time homebuyer requirement||No||No|
|Flexible down payment and closing costs sources?||Yes||Yes|
|Boarder income allowed?||Yes||Yes|
How do you apply for a Home Ready or Home Possible loan?
It’s as easy as 1, 2, 3!
1. Review loan benefits, the Home Possible guidelines, the Home Ready guidelines, and select the best option for you
2. Make sure you meet all requirements
3. Contact NorthPort Funding – we’ll take it from here!