Freddie Mac and Fannie Mae. They offer a variety of low down payment options through lenders, both under their standard loan programs and those tailored for first-time buyers and lower- and middle-income households. Most of their programs allow down payments as low as 3 percent to eligible borrowers, slightly lower than FHA loans.
And in the past year or so, both Fannie and Freddie have begun to allow lenders to review many potential borrowers through a broader lens. For example, they can award points to loan applicants who have a positive cash balance in a checking account over time, or who have a good track record of paying rent on time. “All of those are factored into the evaluation,” said Danny Gardner, a senior vice president of customer and community engagement at Freddie Mac’s single-family division.
The different programs focus on different groups. Freddie Mac’s HomeOne mortgages only allow down payments as low as 3 percent if at least one first-time borrower purchases a home. (Many government programs define this as someone who hasn’t owned a home in at least three years.) And the program has no minimum credit score.
Freddie’s Home Possible program is similar, but it targets all lower-income borrowers — those who earn 80 percent or less of their area’s median income. The program waives fees usually charged to people with lower credit scores, and mortgage insurance usually costs less.
Family gifts are allowed to cover part or all of the down payment on a primary home, closing costs, or deposit into a bank account after closing to ensure the borrower has money on hand for an emergency – as long as you can show that you don’t, you don’t have to pay it back. Both Freddie’s HomeOne and Home Possible programs are designed to allow borrowers to receive down payment support from other programs run by states, cities, or local organizations.
Fannie’s version, called the HomeReady program, allows buyers to put down as little as 3 percent and can result in lower monthly payments compared to standard mortgages. It imposes an income cap (no more than 80 percent of the property median), but it accepts people with a credit score of just 620. It generally allows gifts, too.
Marc Hernandez, president of Alterra Home Loans, which focuses on first-time Spanish homebuyers, said lower-to-middle-income borrowers often fare better with products like HomeOne or HomeReady compared to the standard loans backed by Fannie or Freddie, or those offered through the FHA “Their qualifications are a little more difficult than an FHA in terms of debt-income and credit score,” he said, “but the loan terms tend to be a little more favorable than an FHA mortgage.”
