Low down payment mortgages: your 2023 guide

Freddie Mac and Fannie Mae. They offer several low-down payment options through lenders, both through their standard loan programs and those tailored to first-time buyers and low- and middle-income households. Most of their programs allow down payments as low as 3% to eligible borrowers, slightly lower than FHA loans.

And over the past year or so, Fannie and Freddie have begun allowing lenders to judge many potential borrowers using a broader lens. They can, for example, give points to loan seekers who have maintained a positive cash balance in a checking account over time, or who have a good track record of paying rent on time. “All of these are factored into the assessment,” said Danny Gardner, senior vice president of customer and community engagement at Freddie Mac’s single-family division.

Different programs cater to different groups. Freddie Mac’s HomeOne mortgages allow down payments as low as 3% only when at least one borrower is a first-time home buyer. (Many government programs define this as someone who hasn’t owned residential property for at least three years.) And the program has no minimum credit score.

Freddie’s Home Possible program is similar, but is for all low-income borrowers — those who earn 80% or less of their area’s median income. The program removes fees usually charged to people with lower credit scores, and mortgage insurance generally costs less.

Family gifts are allowed to cover part or all of the down payment on a primary residence, closing costs, or deposit in a bank account after closing to ensure the borrower has cash on hand in an emergency – as long as you can show that you don’t need to pay it back. Freddie’s HomeOne and Home Possible programs are designed to allow borrowers to receive down payment assistance from other programs run by states, cities or local organizations.

Fannie’s version, called its HomeReady program, allows buyers to deposit as little as 3% and can result in lower monthly payments compared to its standard mortgages. It caps income (no more than 80% of the property’s median square footage) but accepts people with credit scores as low as 620. It also generally allows gifts.

Marc Hernandez, president of Alterra Home Loans, which caters to Hispanic first-time buyers, said low-to-middle-income borrowers often do better with products like HomeOne or HomeReady compared to standard loans backed by Fannie or Freddie, or those offered by the FHA “Their qualifications are a bit tougher than an FHA in terms of debt to income and credit score,” he said, “but the loan terms tend to be a bit more favorable than an FHA mortgage.”