New Options From Fannie and Freddie

Federal Agencies Helping Purchasers

Federal Agencies Helping Purchasers

Are you or is someone you know needlessly missing the action, leaving near-historically low money on the table? You might be, if you fit this profile:

  • You’re renting, although your goal is to buy a home. You assume you can’t qualify for a home loan because today’s underwriting rules are so strict and inflexible.
  • You don’t have a lot of extra cash in the bank, and you doubt that you could scrape together enough money for a down payment.
  • Your credit scores aren’t great — just under 700 FICO — but that’s mainly because you’re young and don’t have a deep credit history.

Sound familiar? Well, here’s good news. Giant mortgage investors Fannie Mae and Freddie Mac have low-down-payment plans known as HomeReady and Home Possible Advantage. Either one could be key to your getting out of your rental apartment and buying a house or condo sooner than you think. Check out the basics of Fannie’s program:

Start with the 3 percent down payment. There’s no minimum cash contribution requirement out of your wallet. You can supplement your cash on hand with gifts from relatives or other sources. You can also increase your effective income for qualification purposes by including so-called “boarder” or in-house rental payments. Another point of flexibility: Say you are part of an extended family, and there will be other household members living in the house with you who earn incomes but don’t want to be a co-borrower. You can use their documented earnings to increase the maximum debt-to-income ratio (DTI) you’re allowed on your loan.

As you might suspect, that kind of underwriting flexibility comes with some requirements. HomeReady and Home Possible Advantage are targeted at moderate-income primary residence buyers — first-timers, minority purchasers, extended family groups and other “underserved” borrowers — so not everybody can participate. In designated low-income census tracts, there is no income limitation. Both programs also require some form of homeownership credit education: either an online course or, under Fannie’s latest version, counseling sessions with any of a network of housing counselors around the country.

Source: Ken Harney, The Nation’s Housing