There’s a misconception out there that you need to put 20% down in order to get a mortgage. That may have been the case in previous generations, but it isn’t anymore. While there are some benefits to a higher down payment, you can now get into a home with as little as 3% down.
This could help you buy a home if you have some savings and a steady income but haven’t been saving for years. It can also help you upgrade your home if you need more space. Let’s go over a couple of great low down payment options we offer at Quicken Loans for conventional loans.
Fannie Mae has a couple of low down payment programs for first-time home buyers that could be very attractive options. They’re both 3% down payment options, but there are a couple of differences that could push you toward one program or another.
HomePath Ready Buyer Program
Fannie Mae is more than a mortgage investor – it owns some properties after foreclosures. Fannie Mae isn’t in the business of owning homes, so they’ve introduced an incentive for well-qualified buyers to take the property off their hands. It’s the HomePath Ready Buyer program.
First-time home buyers who buy a property through Fannie Mae’s HomePath site have the opportunity to purchase a home with as little as 3% down. The buyer can also get up to 3% in seller concessions from Fannie Mae in order to save on closing costs.
In order to qualify for this program, there are a few special requirements.
First, at least one of the clients on the loan must be a first-time home buyer. This is defined as not having had any ownership interest in a residential property in the last three years prior to application.
The client also must take and pass a HomePath Ready buyer education course. The course takes anywhere between four and six hours for most people and is available in English and Spanish. At completion, you’ll get a certificate for your real estate agent to submit with your offer and any request for closing cost assistance. The course costs $75, but this can be reimbursed as part of your closing cost assistance.
This program can be a great deal for first-time home buyers.
Alternative 3% Down Option
If you’re not buying a HomePath property, there’s still a 3% down payment option available to you – it just doesn’t have a fancy name. The main difference between these programs is that you can’t ask for closing cost assistance.
Though, there are some commonalities between the two programs: The lowest median FICO credit score of all clients on the loan must be 620 or higher, and the property has to be a one-unit primary property.
Also, the maximum debt-to-income (DTI) ratio you can have is 50%. DTI is a comparison of your existing debts including car and house payments, student and personal loans and credit card payments against your monthly income. For the best chance of approval, your DTI should be no higher than 45%.
Freddie Mac has its own 3% down payment option, known as Home Possible.
This loan option is available to everyone; you don’t have to be a first-time home buyer. The only restriction here is that you can only own one other residential property. If both clients are first-time buyers, you’ll also need to take a homeownership education course. The home must serve as your primary property.
With a slightly higher down payment of 5%, you can also get a two-unit property with this loan option.
In terms of other restrictions, the income of all clients on the loan generally has to be no more than 80% of the area median where you’re looking to buy. If it’s in an area Freddie Mac considers to be low income, these limits don’t apply.
Finally, this program requires a median FICO score no lower than 620.
If any of these options sound right for you, you can get a preapproval online through Rocket Mortgage. If you would rather talk to one of our Home Loan Experts, you can give us a call at (800) 785-4788. If you have any questions, leave them for us in the comments below.
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