What type of loans are there?
Conventional Loan
A conventional mortgage or conventional loan is a home buyer's loan that is not offered or secured by a government entity. It is available through or guaranteed by a private lender or the two government-sponsored enterprises—Fannie Mae and Freddie Mac
Home Ready Loans
The Fannie Mae HomeReady mortgage program caters to lower-income homebuyers who don’t have a large down payment saved up.
If you qualify for a HomeReady mortgage and make the minimum down payment — or anything less than 20% — you’ll pay private mortgage insurance (PMI).The price you’ll pay for PMI depends on several factors, including your credit score and loan-to-value ratio, which is the percentage of your home’s value being financed by the mortgage. Just as with a standard conventional mortgage, you can request PMI cancellation once your LTV reaches 80%, or wait for automatic cancellation when you have a 78% LTV.
How to qualify:
Buyers who might have trouble qualifying on their income alone can benefit from adding supplemental income, such as rent payments from a tenant, to their qualifying income on a loan application.
Still, there are income limitations for HomeReady loans. Homebuyers must earn a maximum of 80% of the area median income (AMI) wherever they’re buying. You can check the income limit for your area using Fannie Mae’s lookup tool.
Eligible HomeReady borrowers also have a few options when it comes to funding their down payment and closing costs. For single-family homes, there’s no requirement for borrowers to contribute a certain percentage of their own funds. So the borrower can use gifts, grants or a Community Seconds loan to cover their cash to close.
Fannie Mae also requires first-time homebuyers to complete its Framework homeownership education program. The program is designed to help borrowers navigate the lending process and successfully manage their mortgage.
Home Possible
Freddie Mac’s Home Possible mortgage program is geared toward low- to moderate-income borrowers who can afford a 3% down payment. PMI is required until your loan balance drops to at least 80% of the home’s value.
The program is also a good option for borrowers who don’t have a credit score because of a lack of credit history. In that case, the minimum required down payment increases to 5%.
How to qualify:
Similar to the HomeReady program, Home Possible mortgages come with income limitations. The borrower’s annual income must be less than or equal to 80% local AMI.
Funds for the down payment and closing costs can come from your own funds, a gift, a grant or the Affordable Seconds program.
Buyers are required to complete a homebuyer education course if all borrowers on the loan are first-time buyers, or if none of the borrowers have a credit score. They can meet the education requirement by taking a course from an eligible source, such as a HUD-approved counseling agency, housing finance agency or the free CreditSmart course offered by Freddie Mac.
Homestyle Renovation Loan
The Fannie Mae HomeStyle Renovation Loan is a government-backed mortgage that provides funds to remodel and repair a house. The loan can be in the form of a purchase mortgage or the refinance of a current mortgage with extra cash for improvements, allowing you to find your dream home and make it yours.
HomeStyle loans are available only through Fannie Mae-approved lenders ( that's me), and the amount is limited to 75 percent of the “as-completed” appraised value of the property once the repairs or renovations are finished, rather than its existing, pre-renovation value. This helps homeowners who don’t have a lot of home equity to borrow against.
The loan can be used for a primary residence, vacation home or investment property. It comes with a fixed or adjustable rate and terms of 15 years or 30 years. The cash payout for renovations is not disbursed to the lender; instead, the money is held in escrow and must be used solely for the renovation.
FHA Loans
A Federal Housing Administration (FHA) loan is a mortgage that is insured by the Federal Housing Administration (FHA) and issued by an FHA-approved lender. FHA loans are designed for low-to-moderate-income borrowers; they require a lower minimum down payment and lower credit scores than many conventional loans.
In 2021, you can borrow up to 96.5% of the value of a home with an FHA loan. This means you'll need to make a down payment of 3.5%.