June 3, 2021
Are you considering the purchase of a home? Among the options, you need to consider? The right kind of home loan for the right type of borrower.
There are many loan programs out there with a variety of government-backed mortgages to choose from including USDA, FHA, and VA. There are also Fannie Mae and Freddie Mac loans.
When exploring those home loan options, some borrowers want the lowest upfront costs possible, which makes sense when a borrower has other goals for that money, and making a down payment would hurt those plans. Some borrowers may need that money at another point, and seek out down payment assistance in the form of grants, loans, etc.
One type of home loan that features a low down payment of 3% and allows down payment gifts, grants, and “community second” mortgages for the down payment is the Fannie Mae Home Ready loan.
This is a mortgage that, among other features, allows the applicant to qualify for the loan using any income from any adult living with them. There are lower credit requirements than for some conventional loans–Home Ready loans have qualifying FICO scores starting at 620 or better.
But not all borrowers choose this option, and for a very good reason.
Why would a borrower volunteer to use a home loan program like an FHA mortgage which features a slightly higher down payment requirement than a Fannie Mae Home Ready loan?
Because Fannie Mae Home Ready loans are need-based mortgages created specifically to help low-income borrowers. The Home Ready loan program is not open to all applicants.
FHA loans allow a borrower to qualify with their income, but the FHA program does not set a limit on how much you can earn–there are no income caps on FHA mortgages. Compare that to a Home Ready mortgage, where applicants must not earn more than 80% of the median income for the area.
FHA home loans, as mentioned above, are intended for anyone who can financially qualify. The FHA loan program does not impose income limits.
FHA loans require qualifying FICO scores (580 or higher for the maximum FHA financing option based on FHA standards, lender standards will vary), stable income, and acceptable debt ratios.
Some borrowers have a definite financial need, and the Home Ready program is a valuable tool for anyone with a lower income who wants to buy their own home.
It’s important to consider all your home loan options, but it’s just as important to know why some loans are open to you and which ones may.
Some home loans are not open to some borrowers due to low-income requirements, purchase price limits where applicable, etc.
It never hurts to compare loan programs and you should always compare your FHA loan options with other programs including conventional, USDA, Fannie and Freddie, etc. Make the most informed home loan choices possible for best results.
Bruce Reichstein has spent over three decades as an experienced FHA and VA home loan mortgage banker and underwriter where he was responsible for funding “Billions” in government backed mortgage loans. He is the Managing Editor for FHANewsblog.com where he educates homeowners on the specific guidelines for obtaining FHA guaranteed home loans.
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