Refinancing a mortgage can be a smart financial move for homeowners looking to reduce their monthly payments, secure a lower interest rate, or access the equity in their home. FHA, USDA, and VA loans offer unique benefits that make them particularly attractive options for refinancing.
1. Credit, Eligibility & Income Limits:
Home Possible:
- Allows for up to 100% area median income (AMI) in most areas.
- In designated high-cost areas, it may allow for higher income limits.
- No income limits in underserved areas.
- Credit score must be at least 660
- Only considers the income of the borrower who is obligated by the loan
Home Ready:
- Allows for up to 80% AMI in most areas.
- In designated low-income census tracts, it allows for higher income limits.
- Also has no income limits in certain areas.
- Credit score must be at least 620
- Considers non-borrower income
2. Occupancy and Property Types:
Home Possible:
- Available for primary residences only.
- Allows for one-unit properties, condos, co-ops, and some manufactured homes.
- Also allows for two- to four-unit properties.
Home Ready:
- Available for primary residences only.
- Allows for one-unit properties, condos, co-ops, and manufactured homes.
- Does not typically include multi-unit properties, except in certain cases.
3. Down Payment and Loan-to-Value (LTV) Ratios:
Home Possible:
- Minimum down payment of 3%.
- Allows for up to 105% LTV with Community Seconds (a subordinate financing option).
- Allows borrowers under certain circumstances without a credit score to qualify with a minimum down payment of 5%.
Home Ready:
- Minimum down payment of 3%.
- Allows for up to 97% LTV on one-unit properties.
- Does not typically go up to 105% LTV like Home Possible.
4. Education Requirements:
Home Possible:
- Strongly recommends a homeownership education course for at least one borrower if all borrowers are first-time homebuyers.
- Doesn't require the course, but borrowers who complete it may be eligible for benefits like lower mortgage insurance costs.
Home Ready:
- Requires a homeownership education course through an approved provider for all first-time homebuyers.
Summary:
- Income Limits: Home Possible generally allows for higher income limits in certain areas. However, Home Ready allows household non-borrower income to qualify.
- Credit Score: Home Possible's minimum is 660, while Home Ready's is 620.
- Property Types: Home Possible allows for multi-unit properties, while HomeReady is more restrictive.
- LTV Ratios: Home Possible allows higher LTV ratios in some scenarios.
- Education Requirements: Home Possible doesn't require the course unlike Home Ready, but completing the course opens eligibility for additional benefits.
- Flexibility: Both programs offer flexibility in credit and funding sources.
These differences can help borrowers choose the program that best fits their financial situation and homeownership goals.
Sources: Freddie Mac Home Possible, Fannie Mae HomeReady
