HomeReady and home possible: Loans with 3% down for 2018

For years, the Federal Housing Administration was the king of the low-down-payment mortgage mountain. 


Now, Fannie Mae and Freddie Mac, the government-sponsored enterprises that provide capital to the mortgage market, are designing loan products for hopeful home buyers with skinny savings accounts.

Jonathan Lawless, vice president for product development and affordable housing at Fannie Mae, says today’s low-down-payment FHA loans can be “expensive," with upfront and ongoing mortgage insurance premiums that last for the life of the loan. So Fannie Mae decided to build a competitive low-down-payment loan product of its own.

There are income limits wrapped into the HomeReady program, except in designated low-income neighborhoods. Fannie’s standard 97 LTV loan doesn’t have such restrictions, if at least one borrower is a first-time home buyer.

But just clearing the DTI and credit score hurdles will not gain you approval. Lawless says Fannie Mae looks to eliminate “risk layering” — multiple factors that work against the borrower’s creditworthiness. A low credit score would be one. Add a high DTI and you have two strikes against you.

It needs to be one or the other.

“It would never be possible to do a [97 LTV loan] with a 620 FICO and a 50 [DTI],” Lawless tells NerdWallet. “You’re going to need compensating factors.

That could mean more cash in the bank, a higher income — or ultimately more than a 3% down payment.