Home purchasing has just become a lot easier for a large number of potential buyers. Fannie Mae and Freddie Mac, the country’s two main mortgage giants, now have programs for home purchases with just a 3% down payment.
If you’re shopping for a low down payment mortgage, there are options as low as 3% down!
By the way, that’s even lower than FHA requires.
A 20% down payment is considered ideal when buying a home, but saving up that much can be a challenge. The good news is there are a number of low down payment mortgages available today.
Many homebuyers assume they need impeccable credit scores to qualify for a loan that requires just 3% down. That’s not the case, either.
Here are some of the programs available:
With its new HomeReady mortgage, the giant mortgage backer looks to help first time homebuyers and repeat buyers alike.
Here are few of the highlights of the HomeReady mortgage program:
- As little as 3% down payment
- Lower private mortgage insurance costs
- Down payment sources include gifts, cash-on-hand, and down payment assistance programs.
- Use income from non-occupant co-borrowers to qualify
- Income from non-borrowing household members helps your approval.
- “Boarder income” (income from a roommate) helps you qualify.
Fannie Mae’s HomeReady low down payment home loan allows for buyers to obtain loans up to $453,100 with as little as 3% down.
The borrower(s) must live in the home, so you can’t buy second homes or investment properties. You can buy two- to four-unit properties as long as you’re living in one of the units, but your down payment requirements will increase if you buy a two to four-unit property.
Income Limits for the HomeReady Mortgage
Income limits are set by geographical areas for this particular loan program. In underserved areas, there are no income limits. In more economically developed areas, Fannie Mae has limited the amount of money HomeReady applicants can make.
- Properties in low-income census tracts: no income limit
- Homes in high-minority areas and designated disaster areas: 100% of the area’s median income
- Properties in any other area: 100% of the area’s median income
For instance, a home buyer in Los Angeles County finds a home within an area that limits income to 100% of the median income. The median income for Los Angeles is $67,200 so that is the most the buyer can make and still buy the home.
If the borrower makes more than this, he or she could find a home in an underserved area with no income limit. Upon a successful home search, he or she could use HomeReady.
Fannie Mae has published HomeReady eligibility maps for each state that detail each geographical area. It can be difficult to see the exact boundaries. Be sure to check the property address of the home you want to buy and your income by contacting me here….and there is a mandatory home counseling class that must be done online for a small fee.
Home Ready mortgages do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here….
For more, see Tim Lucas’ post at My Mortgage Insider
Home Possible and Home Possible Advantage are two conventional loan programs created by Freddie Mac. They are affordable given their smaller 3% to 5% down payment requirement. The one that’s right for you will depend upon your income, the type property you wish to finance, and property location.
However, to use either program you cannot have an ownership interest in any other residential property.
For example, if you are a move-up buyer, you must sell your current home before taking on a Home Possible loan.
Both programs are used for purchases or refinances. In the case of refinances, no cash-outs are allowed. Refinances can only be used to change the interest rate or term, as would be the case when switching from a 30-year mortgage to a 15-year mortgage.
Home Possible Down Payments
Many mortgage programs require that some of the down payment funds come from the borrower. Home Possible mortgages allow funds from a variety of sources to help you reach the 3% to 5% down requirement. Money used for your down payment can come from:
- Family and friends
- Affordable seconds programs (federal, state or municipal programs that provide down payment assistance)
- Employee assistance programs
If family and friends help you with gift funds, you and your donors will need to sign a mortgage gift letter – a legal document that states all funds are truly a gift, not a temporary loan you’d pay back.
Home Possible Income Limits
Because the Home Possible loan programs are designed for low to moderate-income borrowers, income limits apply. To be eligible for either mortgage program, your income cannot exceed the Area Median Income (AMI) where the property is located.
There are a few exceptions to the income limit guidelines. The first exception is in high-cost areas, as you’d find near big cities. In more expensive areas, higher incomes are allowed. For example, 140% of AMI will still qualify in some parts of California.
Second, there’s no borrower income limit in rural or underserved areas. The easiest way to determine your local income limits and property eligibility (e.g. underserved area) are to search using Freddie Mac’s income and property eligibility tool.
Home Possible mortgages do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here…. and there is a mandatory home counseling class that must be done online.
The difference between this program and Fannie’s Home Ready version, is that there are NO income limits or geographic restrictions.
You can use your own funds or gift funds from a family member for the down payment, and the home must be an owner-occupied single unit home (including condos).
Conventional 97 Loan Limits
Loan limits are the maximum loan amount available to borrowers who wish to take out a mortgage. Loan limits are set by county (and sometimes at a more granular level). A price adjustment is made so that the maximum loan amount reflects average home prices surrounding the property.
Borrowers get a little more headroom to the upside when buying in a big city than rural areas. So there are two core limits outlined below: the first one applies to most counties across the United States and second one applies to big metro areas. Fannie Mae provides a search tool to find conventional loan limits by property address. Conventional 97 loan limits are as follows:
- $453,100 in most counties
- $679,650 in high-cost areas
Conventional 97 mortgages are 30-year fixed loans, and do require mortgage insurance. Mortgage insurance is an extra fee on top of the monthly mortgage payment. You can find out more about mortgage insurance here….
As you can see, there are plenty of low down-payment options available to borrowers today please do reach out to me for more information, as it would be my pleasure to help!