3% Down Conventional Mortgage Loans– Fannie Mae- Home Ready, Freddie Mac- Home Possible.  This program is great for a person or persons with a good credit profile a low down payment, and make under the income restrictions the program has.   This program is a great alternative to an FHA loan as this product has a monthly mortgage insurance factor but the mortgage insurance can be removed once the mortgage reaches a 20% equity position.   This product is also good because it has a reduced mortgage insurance factor as opposed to a regular conventional loan.

In addition to its down payment requirement of as little as 3 percent, Home Possible now offers more options to responsibly increase homeownership for more of your borrowers. Do-it-yourselfers can apply sweat equity to assist in meeting their down payment and closing costs, co-borrowers who do not live in the home can be included for a borrower’s one-unit residence, borrowers are permitted to own other properties, and more – all with competitive pricing and the ease of a conventional mortgage.

 3.5% Down FHA Loans– Ginne Mae and the dedicated FHA lenders originate FHA mortgage loans.   An FHA loan typically starts with a minimum down payment of 3.5%, does not have income restrictions, typically will have a bit lower interest rate than a conventional loan, and has non-cancelable mortgage insurance.    FHA loan sometimes will also allow higher debt to income ratios, allow the use of gift funds in more instances, and has a different set of underwriting and packing guidelines that a conventional loan.   FHA loans are also great for multiple family owner occupied purchased as well because you can purchase a duplex, triplex, or 4-plex with a minimal down payment.

A Quick Comparison

Loan originators should always explore Fannie Mae’s HomeReady® mortgage program with any low-to-moderate income borrower considering FHA financing. Although we will delve into HomeReady®-specific underwriting considerations shortly, the following is a comparison of these loans’ basic differences:

Although standard FHA 203(b) mortgage financing offers borrowers down payment options as low as 3.5%, Fannie Mae’s conventional HomeReady® program allows low-to-moderate income borrowers the opportunity to close on a home with a down payment of as little as 3%.

Fannie Mae’s conventional HomeReady® alternative allows borrowers to petition for the removal of their mortgage insurance once their LTV amortizes down to 80%.