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First-time Homebuyers: You May be Closer to a Down Payment than You Think

Several first-time homebuyers find saving for a down payment to be the most difficult step in the home-buying process. However, it is a common misconception that you always need 20% down to buy a home. Michele Harmon Team is here to inform you about the most popular low-down alternative payment options.

FHA Loan

Traditionally, first-time home buyers obtain a FHA (the Federal Housing Administration) loan, which offers government-insured loans with as little as 3.5% down. The most popular FHA loan option, the 203(b), is widely available from lenders across the country. Homebuyers can qualify with a credit score as low as 500. However, there may be limitations on some condo purchases.

Home Possible®

The Freddie Mac Home Possible® program allows you to put between 3 and 5% down upon completion of an online homeownership education program, if you intend to use the home as your primary residence and you do not currently own or share ownership of another house. 

Benefits include:

  • Obtaining the goal of homeownership without the barrier of gathering a 20% down payment
  • The ability to apply sweat equity for up to the entire amount of the down payment and closing costs.
  • Non-occupying co-borrowers can contribute to borrower funds on one-unit properties.
  • The ability to cancel mortgage insurance after reaching 20% equity, reducing the monthly mortgage payment and potentially saving thousands over the life of the loan.
  • Enabling empowered decisions and life-long responsible homeownership with required financial literacy education, which can be fulfilled by Freddie Mac’s free, online CreditSmart® tutorials.

Conventional 97

If you are applying for a fixed-rate mortgage on a single-family home that is less than $417,000, just 3% down is enough to help you qualify for a Conventional 97 with Fannie Mae! To qualify, a least one borrower will be required to complete a homeownership education program, when all occupying borrowers are first-time homebuyers. 


HomeReady by Fannie Mae is another option that requires as little as 3% down and it can also offer you below-market interest rates. This program will also allow non-occupant borrowers to apply. For instance, parents can secure this type of loan for a young adult who is just starting to establish credit. 

The ideal HomeReady borrower is described as:

  • Low income
  • First-time or repeat homebuyers
  • Having limited cash for a down payment
  • Having a credit score greater than or equal to 620. 

Benefits include:

  • Low down payment for home purchase or refinance transactions.
  • Flexible funding- Cash for down payment or closing costs can come from multiple sources including gifts, grants, and Community Seconds®, with no minimum personal funds required.
  • Competitive pricing- Better than or equal to Fannie Mae’s standard loan pricing (risk-based pricing waivers for LTV ratios less than 80% with a credit score less than or equal to 680).
  • Simplicity- Combine standard and HomeReady loans into MBS pools and whole loan commitments.
  • Affordable Mortgage Insurance: Reduced mortgage insurance coverage requirement above 90% LTV; cancellable once the borrower’s equity reaches 20% (restrictions apply).

Click here to learn more about HomeReady.

To discuss the best option for you, click here to connect with one of our reputable lenders. If you are ready to get started on the home buying process, call Michele Harmon Team TODAY at 713-818-1330! We will guide you through the process every step of the way! When you hire a top producer, like Michele Harmon Team, you will benefit by not having one, but multiple licensed and experienced agents and admin working for your best interests. It takes a village, and that is what Michele Harmon Team represents. 

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