Tag Archives: HomeReady

Low Down Payment Loan Programs

Here’s the low-down on buying a house with a minimal down payment. 

These are excellent loan programs. I’ve highlighted some advantages of each.

HomePossible Advantage

  • Only 3% down payment.
  • You don’t have to be a first-time home buyer.
  • Can be a house or condominium.
  • You get the same low interest rate as the buyers with 20% down.
  • Reduced monthly mortgage insurance fee.
  • There is an income limit, unless the neighborhood is an area with low home ownership (called under-served area).
  • 620 credit score or higher.
  • Money comes from Freddie Mac (get the loan through your mortgage broker).

HomeReady

This is Fannie Mae’s version of HomePossible.

  • 680 credit score or higher.

FHA – Federal Housing Administration

  • Down payment is 3.5%.
  • 580 credit score
  • Bankruptcy Chapter 7 okay after 24 months discharge.
  • Can be a house, condominium, or manufactured home.
  • No education class required.
  • Has an upfront mortgage insurance fee of 1.75% that is rolled into the loan.

My Recommendation

I recommend speaking with a mortgage broker who will find the best and lowest priced loan that is available for you. Only a mortgage broker is required by federal lending law to get you the lowest interest rate available. Why? Because mortgage brokers shop wholesale lenders for you. Banks, credit unions, and direct lenders use their own money, so they don’t have the wholesale options. Therefore, they are allowed to charge you whatever they like (within limits). For example, today a home buyer received a quote from a direct lender (rhymes with Build Mortgage) with an interest rate of 5.5% whereas the mortgage broker’s rate is 4.5%.

If you are in Washington or California, I am licensed in those two states and would be happy to help you! (NMLS # 1284134)

You can apply online here.

 

 

 

What Credit Score Do You Need to Buy a House?

Your credit score is a major factor in qualifying for a home loan. Here are the score requirements for popular loan programs.

FHA – Federal Housing Administration
(Often referred to as a first-time home buyer’s loan; although, you needn’t be a first time buyer to get it.)
580 to 620 (depending on the lender and other credit factors)

HomeReady
(Program designed for first-time buyers with average or below incomes.)
620

Conventional 3% down
720

VA – Veterans Administration
500 to 620 (depending on the lender and other credit factors)

USDA – U.S. Dept. of Agriculture
640 (most lenders)

Subprime Loan
No score required with sufficient down payment
(Usually 30% to 40% down payment required. Interest rates from 8% to 12%.)

IMPORTANT TO KNOW

  • Lenders use your mortgage credit score, not the consumer credit score you get from a free site.
  • Lenders use the middle score of three. Scores are not averaged together.
  • When there are two or more people on the loan, the score of the person with the lowest score is used.
  • Credit score is only one factor in credit qualification. Other factors are public records (such as foreclosure, bankruptcy, judgements, liens), last 12 months’ pay history, etc.

BUY NOW OR WAIT FOR A HIGHER CREDIT SCORE?

Is it better to buy a home with a low score and higher interest rate, or does it make sense to wait until your credit has improved?

That depends, but in general, if you can raise your score in three

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months, it is better to wait and take the lower interest rate. On the other hand, if it is going to take a year or longer to raise your score and if house pricing are rising in your neighborhood, then I would buy the house now and refinance in a year or two. That way, you can build wealth in equity while your credit is improving. Most people cannot save money as fast as prices are going up. That said, it is an individual situation that you should discuss with your loan officer.

 

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