First-Time Home Buyer Mortgage Showdown: FHA vs. HomeReady
FHA and HomeReady Loans are two popular mortgage programs for first-time buyers. Both offer low down payment options and flexible approval requirements, but what program saves you the most in the long run?
The answer depends on your situation. FHA Loans do not have income limitations and feature down payments as low as 3.5%, but do apply an upfront mortgage insurance premium to your loan amount. HomeReady Loans do not require upfront mortgage insurance and offer a bit less of a down payment at 3%, but do have income limits depending on the median income of the area where the home is located and the monthly mortgage insurance may be more expensive.
Here’s a breakdown of each loan based on a $250,000 purchase price and a 660 credit score*:
FHA vs. HomeReady
|FHA Loan||HomeReady Loan|
|Flexible Underwriting / Credit Requirements||Yes||Yes|
|Rate / APR||4.750% / 5.673 APR***||5.125% / 6.129 APR***|
|Minimum Down Payment||3.5% ($8,750)||3% ($7,500)|
|Principal & Interest||$1,280.49||$1,320.38|
|Total Monthly Payment**||$1,448.44||$1,568.94|
|*As credit score improves, monthly payment on Home Ready will decrease. With a 700 credit score, the Home Ready program will be more affordable. |
**Total payment does not include taxes or homeowner’s insurance. Actual payment will be higher.
***APR assumptions assume a purchase transaction, 660 credit score, single family detached home in Illinois and a 45 day lock.
If you need help calculating payments or determining what mortgage is best for you, contact us below or at 708-531-8388.