Conventional Loans for
First-Time Homebuyers
First-time buyers have access to 3% down conventional programs that rival FHA, with the added benefit of cancellable mortgage insurance. Here's how HomeReady, Home Possible, and standard 97% LTV programs compare.
The Basics
Conventional Isn't Just for 20% Down Anymore
The conventional loan landscape has changed dramatically for first-time buyers. With programs allowing as little as 3% down, 100% gift fund eligibility, and the permanent advantage of cancellable mortgage insurance, conventional has become a serious competitor to FHA for first-time homebuyers, especially those with credit scores above 680.
The three primary conventional paths for first-time buyers are HomeReady (Fannie Mae), Home Possible (Freddie Mac), and the standard 97% LTV program. Each has slightly different eligibility rules, but they share a common structure: 3% minimum down payment, reduced PMI rates compared to standard conventional, and access to the full conforming loan limit. Understanding which program fits your income and credit profile determines whether conventional or FHA delivers the better overall deal.
Programs
Three Paths to 3% Down on Conventional
All three programs allow a 3% down payment on a primary residence, but they serve slightly different borrower profiles. The key distinctions are income limits, first-time buyer requirements, and available PMI discounts.
HomeReady (Fannie Mae)
- 3% down, 620 minimum creditFull conforming limits apply, up to $806,500 in standard areas.
- Income limit: 80% of area medianYour qualifying income cannot exceed 80% of AMI for the property's location. Lookup tool available on Fannie Mae's site.
- Not limited to first-time buyersAny borrower meeting the income limit can use HomeReady, repeat buyers included.
- Boarder and rental income countedIncome from roommates or accessory dwelling units can help you qualify, unique to HomeReady.
- 100% gift funds allowedYour entire 3% down payment can come from family gifts. No own-funds requirement. See gift fund rules
Home Possible (Freddie Mac)
- 3% down, 620 minimum creditSame down payment and credit floor as HomeReady.
- Income limit: 80% of area medianSame income cap as HomeReady. Uses Freddie Mac's area eligibility tool for lookup.
- Not limited to first-time buyersLike HomeReady, repeat buyers who meet income limits can use Home Possible.
- Sweat equity countedHome Possible allows "sweat equity" contributions toward the down payment in some cases, HomeReady does not.
- 100% gift funds allowedFull down payment can be gifted from eligible family members.
The standard 97% LTV program
If your income exceeds the 80% AMI cap for HomeReady or Home Possible, the Fannie Mae 97% LTV program is the alternative. It requires at least one first-time buyer on the loan and has no income limit. Down payment is still 3% and PMI is required, though without the reduced PMI pricing that HomeReady and Home Possible offer. This is the fallback for higher-income first-time buyers who want minimal down payment on conventional.
Side by Side
HomeReady vs. Home Possible: Detailed Comparison
These two programs are close siblings, both backed by GSEs, both targeting moderate-income borrowers, both offering 3% down. The differences are subtle but can matter depending on your specific financial profile.
| Feature | HomeReady (Fannie Mae) | Home Possible (Freddie Mac) |
|---|---|---|
| Min Down Payment | 3% | 3% |
| Min Credit Score | 620 | 620 |
| Income Limit | 80% of area median income | 80% of area median income |
| First-Time Buyer Required | No | No |
| Homebuyer Education | Required (online accepted) | Required (online accepted) |
| Gift Funds | 100% of down payment | 100% of down payment |
| Boarder / Rental Income | Yes, unique feature | No |
| Sweat Equity | No | Yes, unique feature |
| PMI Discount | Reduced rates available | Reduced rates available |
| PMI Cancellation | Yes, at 20% equity | Yes, at 20% equity |
| Loan Limit | Full conforming ($806,500) | Full conforming ($806,500) |
Want To Know What This Looks Like On Your Numbers?
Every scenario is different. A soft credit check tells you where you actually stand, and nothing hits your report until you decide to move forward.
Eligibility
Income Limits on 3% Conventional Programs
Both HomeReady and Home Possible cap your qualifying income at 80% of the area median income (AMI) for the property's census tract. This isn't your personal income limit from previous years, it's the income being used to qualify for the mortgage, measured against the local median. AMI varies significantly by geography, so a buyer earning $75,000 might qualify in one area but not in another.
If you exceed the 80% AMI threshold, you're not locked out of 3% down, the Fannie Mae 97% LTV program has no income cap (but does require at least one first-time buyer). Alternatively, putting 5% down on standard conventional eliminates all income-based restrictions while keeping your down payment relatively low.
How to check your eligibility
Fannie Mae and Freddie Mac each provide online lookup tools where you enter the property address to see the income limit for that specific location. Your lender can also run this check in seconds during pre-approval. The AMI lookups are property-specific, even addresses a few miles apart can have different caps if they fall in different census tracts. Mortgages by Channing checks this automatically when evaluating your loan options.
Requirement
Homebuyer Education: What's Required
Both HomeReady and Home Possible require at least one borrower to complete a homebuyer education course before closing. This isn't just a checkbox, the course covers budgeting, the mortgage process, maintaining your home, and avoiding foreclosure. The good news is that it's typically free or very low cost, and many providers offer online completion.
Accepted Course Providers
- Framework (Fannie Mae's platform)Free online course specifically designed for HomeReady borrowers. Completes in about 4 to 6 hours.
- CreditSmart (Freddie Mac's platform)Free online education for Home Possible borrowers. Similar scope and duration.
- HUD-approved counseling agenciesIn-person or phone counseling from a HUD-certified housing counselor. Accepted by both programs.
Key Details
- Must be completed before closingYour loan officer can issue the pre-approval before the course is done, but the certificate is needed before the loan closes.
- Only one borrower needs to complete itIf you're buying with a co-borrower, only one person is required to take the course.
- Certificate provided upon completionYou receive a certificate that your lender files with the loan documentation. Valid for one year from completion.
Comparison
First-Time Buyer: Conventional 3% vs. FHA 3.5%
This is the core decision for most first-time buyers. Both options allow low down payments and serve similar credit profiles, but the long-term cost structure differs dramatically because of how each program handles mortgage insurance.
| Feature | Conventional 3% Down | FHA 3.5% Down |
|---|---|---|
| Min Down Payment | 3% | 3.5% |
| Upfront Insurance Fee | $0 | 1.75% of loan amount |
| Annual Insurance | 0.30% to 1.50% (credit-based) | 0.55% (flat rate) |
| Insurance Cancellation | Yes, at 20% equity | No, life of loan |
| Min Credit Score | 620 | 580 (3.5% down) |
| DTI Maximum | 50% (AUS approved) | 57% (with factors) |
| Income Limits | 80% AMI (HomeReady/HP) | None |
| Property Flexibility | Primary, second, investment | Primary only |
The decision framework
Above 720 credit: conventional almost always wins because PMI is cheap and cancels. Between 680 to 720: conventional is usually better but run both scenarios. Between 620 to 680: FHA often has lower total cost because conventional LLPAs make the rate expensive. Below 620: FHA is your only option (conventional floor is 620). Below 580: FHA with 10% down is the only conforming path. See the complete conventional vs FHA comparison
Want To Know What This Looks Like On Your Numbers?
Every scenario is different. A soft credit check tells you where you actually stand, and nothing hits your report until you decide to move forward.
First-Time Buyer? Get Your Options Compared.
Mortgages by Channing runs HomeReady, Home Possible, standard 97%, and FHA scenarios side by side, so you can see which program saves you the most.
Common Questions
First-Time Buyer FAQ
Answers about first-time buyer conventional programs, eligibility, and comparisons.
Ready to Buy Your First Home?
Mortgages by Channing compares every available program and shows you the exact monthly payment, total cost, and PMI timeline, so you buy with confidence.
The Application
Apply From Your Phone In Fifteen Minutes
You have never done this before, so here is exactly what it looks like. The whole application runs on your phone, and it reaches me the minute you submit it.
- Starts with a soft credit check, so your score is never touched
- We check which down payment assistance programs you qualify for
- Upload documents with your phone camera, no scanner needed
- You hear back from Channing, not from a call center queue
If the numbers say wait, I'll tell you that too, and then we make a plan to fix whatever is in the way.
Complete Your Application
Five short steps. Most people finish in about fifteen minutes.
- Tell us what you're looking for
- We check assistance programs
- Upload your documents
Your pre-approval letter is ready. I sent it to your email and to your agent.
Got your application. I'm reviewing it now and will call you this afternoon.
Real Closings
Real Clients.
Real Closings.
Real families we have helped get from pre-approval to keys in hand.
Find Out Where You
Actually Stand
A soft credit check tells you what you qualify for before anyone pulls hard credit. If the numbers say wait, I will tell you that too, and then we make a plan to fix whatever is in the way.
See What I Qualify ForMortgages by Channing · 337-476-2623 · Licensed across Louisiana · NMLS #1457759
