3% Down for First-Time Buyers: Which Options Have No Income Limit?

You have a steady job, a good credit history, and savings set aside in a clean folder of statements. Someone told you the 3% down loans are only for lower incomes. Some are, and some aren't.

It's a common mix-up. Here is how the four conventional options compare, and which two have no income cap at all. If you're buying in Maine, my first-time buyer page covers the local steps.

Which 3% down conventional loans have no income limit?

Fannie Mae's standard 97% loan to value option has no income limit. Fannie Mae's own comparison chart lists "No limits" for income on the standard 97% loan. The catch is that at least one borrower must be a first-time homebuyer.

Freddie Mac's version is called HomeOne. Freddie Mac describes it as available to qualified first-time homebuyers "regardless of their income levels or geographic location." Like the Fannie Mae option, it needs at least one first-time buyer on a purchase.

Both are fixed rate loans for a one unit home you'll live in. Neither is for a rental or a second home.

How are HomeReady and Home Possible different?

HomeReady is Fannie Mae's other 3% down loan, and Home Possible is Freddie Mac's. Both cap qualifying income at 80% of the area median income for the property's location. If your income is above that line, these two are off the table.

They have real advantages for buyers who fit. HomeReady doesn't require a first-time buyer, and both programs allow lower mortgage insurance coverage than the standard 97% loan.

So the first thing to check isn't how much you have saved. It's how your income compares with the limit for the town you're buying in, whether that's Westbrook or Tampa.

Who counts as a first-time homebuyer?

The definition is broader than most people expect. For both agencies, a first-time homebuyer is someone who will live in the home and hasn't owned a home in the three years before the purchase.

That means a person who sold a house four years ago and has rented since can count. Freddie Mac adds that owning a timeshare doesn't count as owning a home. There is also an exception for a displaced homemaker or single parent whose only recent ownership was a home shared with a spouse.

On the standard Fannie Mae 97% loan and HomeOne, only one borrower has to meet the definition. A co-borrower who owns a home now doesn't rule out the loan.

When is homebuyer education required?

Education is required on these purchase loans when every borrower on the loan is a first-time homebuyer. In that case, at least one of you completes a homeownership course before closing.

Fannie Mae accepts its free online course, HomeView. Freddie Mac accepts its CreditSmart program and other qualified providers. I suggest it even when it isn't required.

What property and loan rules come with 3% down?

The standard Fannie Mae 97% loan and HomeOne both require a one unit principal residence and a fixed rate. Fannie Mae doesn't allow high balance loans or adjustable rates at this level, and manufactured homes only qualify under its MH Advantage rules.

Condos and townhouses can work. Freddie Mac lists condos and townhouses among eligible HomeOne properties, and the building still has to meet agency project rules. For a Florida condo, that review is its own step.

Each loan also runs through a specific automated system. Fannie Mae's 97% option requires Desktop Underwriter, and HomeOne requires an Accept from Freddie Mac's Loan Product Advisor. The two systems can read the same file differently, which is one reason it helps to compare both.

How does mortgage insurance work with 3% down?

With less than 20% down on a conventional loan, you'll pay private mortgage insurance. Fannie Mae requires it on conventional loans above 80% loan to value, and the CFPB notes that PMI protects the lender, not you.

PMI doesn't have to stay forever. Under the Homeowners Protection Act, you can ask your servicer to cancel it once your balance is scheduled to reach 80% of the home's original value, if you meet the payment and property conditions. It ends automatically at 78% if you're current.

Which 3% down option fits you?

Start with income. If you're above 80% of the area median, look at the standard Fannie Mae 97% loan and HomeOne. If you're under it, HomeReady and Home Possible belong in the comparison too.

Then check the first-time buyer test, the property type, and whether everyone on the loan is buying for the first time. My pages for first-time buyers in Maine and first-time buyers in Florida cover the local side.

As a mortgage broker, I compare these loans across lenders and run the numbers side by side. Residential home loans in Maine and Florida. DSCR loans in 37 states.

FAQ

Is there an income limit on 3% down conventional loans?

Fannie Mae's standard 97% loan has no income limit, and neither does Freddie Mac's HomeOne loan. HomeReady and Home Possible, the other two 3% down conventional options, cap qualifying income at 80% of area median income.

Do you have to be a first-time buyer to get 3% down on a conventional loan?

For Fannie Mae's standard 97% loan and Freddie Mac's HomeOne, at least one borrower must be a first-time homebuyer. Fannie Mae's HomeReady loan doesn't require a first-time buyer, according to Fannie Mae's 97% Loan to Value Options page.

What counts as a first-time homebuyer for a conventional loan?

For Fannie Mae and Freddie Mac conventional loans, a first-time homebuyer is someone who will live in the home and had no ownership interest in a home during the three years before the purchase. Freddie Mac's definition adds that owning a timeshare doesn't count as ownership.

Is homebuyer education required for a 3% down loan?

Homebuyer education is required on Fannie Mae and Freddie Mac 3% down purchase loans when every borrower is a first-time homebuyer. Only one borrower has to complete it, and Fannie Mae accepts its free HomeView course.

Can you remove PMI on a 3% down conventional loan?

Yes, PMI on a 3% down conventional loan can be removed once you build enough equity. Under the Homeowners Protection Act, you can ask to cancel it when your balance is scheduled to reach 80% of the home's original value, and it ends automatically at 78% if you're current.

Can I buy a Florida condo with 3% down?

A 3% down conventional loan can work on a Florida condo if it's a one unit primary residence in a building that meets Fannie Mae or Freddie Mac project rules. Freddie Mac lists condos and townhouses among eligible HomeOne properties.

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Did a bank say your income is too high for 3% down, or that you don't count as a first-time buyer? Write down what they told you and send it to travis@travis.mortgage or through my contact page. I'll check it against the Fannie Mae and Freddie Mac rules above, and that clean folder of statements may go further than you were told.

Started in 2004 and I'm still here.