If you are a low-to-moderate income family, you have two great loan programs at your disposal. The Fannie Mae HomeReady and Freddie Mac Home Possible programs can help you buy a home. Both programs have some similarities, including the ability to borrow as much as 97% of the value of the home.
How do you know which program is right for you? Keep reading to learn their differences to help you decide.
What are the Occupancy Requirements?
One area where both the HomeReady and Home Possible programs agree is the occupancy requirements. The programs are strictly for use on owner-occupied properties. In other words, you cannot use either program to buy a second home, vacation home, or investment property. If you own another home, you will not be able to use this loan program.
What Income Can you Use?
Income is what helps you afford the loan. Usually, you can only use the borrower and co-borrower’s income to qualify for the loan. In the case of the Freddie Mac loan, this is the case. Lenders are not allowed to use any other household income for qualifying purposes.
The Fannie Mae program, however, does allow other non-borrower income to help you qualify for the loan, but in a unique manner. They will not include the income in your qualifying factors. But they do allow lenders to use the income as a compensating factor. In other words, if one of your qualifying factors is borderline between approval and denial, the extra income from a non-borrower that lives in the home can help you get qualified.
What Down Payment is Required?
Both the HomeReady and Home Possible program require a 3% down payment on the home. Both programs also allow you to obtain the funds from sources other than your own funds. For example, you could receive a gift from a family member or friend. You may even receive a gift from an employer.
If you buy a multi-unit property, though, there could be an exception to the rule. If you buy a 2, 3, or 4-unit property, Fannie Mae requires that borrowers put at least 3% of their own money into the investment. In other words, you must make the entire down payment. Freddie Mac does not require any minimum borrower investment in the property even with a multi-unit property though.
Can you Use Rental Income?
Speaking of multi-unit properties, because you can purchase a 2, 3, or 4-unit property, you will have properties you can rent out to others. As long as you live in one of the units, Fannie Mae and Freddie Mac consider the home owner-occupied. This leaves you with the possibility of making rental income.
The good news is that as long as you live in one of the units, you can use the rent you collect from the other unit(s) as boarder income. This income can be included in your qualifying factors, which may help lower your debt ratio, allowing you to get approved for the loan.
So how do you decide which program is right for you? It comes down to your qualifying factors. For example, do you have the money to put down on the home or do you need help? If you have to rely on gift funds and you are buying a multi-unit property, you’ll need the Freddie Mac Home Possible program because the HomeReady program requires you to use your own funds.
What about your income? Do you need the income of a household member that isn’t a borrower to keep your debt ratio down? If so, you’ll need the Fannie Mae program as this program allows the use of non-borrower income.
Take your time and look at all of your options. Both the HomeReady and Home Possible programs make it easy to buy an owner-occupied property. You can even buy a multiple unit property and make an income while living in one of the units. Shop around with different lenders for whichever program you choose to make sure that you get the best rate and fees that are available to you.