As Fannie Mae-backed products, they both offer the same low-cost benefits, such as no minimum credit score requirements, reduced down payments, and flexible qualifying criteria. Both types of mortgages are competitively priced, with HomePath mortgages featuring slightly lower interest rates than HomeReady mortgages.
The primary difference between these two loan products is the type of borrower that they most benefit. HomePath mortgages are designed for first-time buyers and those buying a primary residence, whereas HomeReady mortgages are designed for low- to moderate-income borrowers and those purchasing a second home. While both offer reduced down payments and more relaxed qualifying criteria, HomeReady has slightly stricter requirements when it comes to income and debt-to-income ratios. Additionally, HomeReady requires a minimum 620 FICO score, while HomePath does not.
With HomePath mortgages, borrowers can qualify with a down payment of 3% or more, and don't need to have Private Mortgage Insurance (PMI). HomeReady requires a down payment of at least 3%, but includes an additional 1.5% as “silent” second in order to avoid PMI. This extra 1.5% is essentially a loan that you take out, and is part of the mortgage balance, meaning you'll pay interest on it. However, this benefit may be worth it, as HomeReady generally provides lower interest rates than standard FHA loans.
In terms of eligibility standards, both HomePath and HomeReady allow for co-borrowing, and each program offers assistance with closing costs. HomeReady also offers down payment assistance for qualified buyers in certain areas. It's important to note that, if you're considering using these programs, preparing your finances ahead of time is very important. Lenders will look at your credit history, your income and debt-to-income ratio, and other factors to determine your eligibility.
In summary, Fannie Mae’s HomePath and HomeReady mortgage programs are two popular home loan options, offering competitive interest rates and relaxed eligibility standards. HomePath is suitable for first-time buyers and primary residence purchases, while HomeReady is tailored to those with low-moderate incomes and those purchasing a second home. While both options feature reduced down payments and co-borrowing, HomePath does not require a minimum FICO score and HomeReady does. Additionally, HomeReady may provide more access to closing costs assistance and down payment assistance in certain areas. As with any loan product, it's important to prepare your finances ahead of time and understand what you're eligible for.
This article was contributed on Dec 11, 2023