HomeReady and Home Possible: Conventional 3% Down in Texas
Around one in three conventional purchase loans I quote for first-time Texas buyers ends up with a 3 percent down payment, and many of those buyers walk in believing 20 percent was the entry fee. The 2026 conforming loan limit sits at $832,750 (FHFA, effective January 1, 2026), so conventional financing covers nearly every starter home in the state. The question is which 3 percent path fits you. Fannie Mae’s HomeReady and Freddie Mac’s Home Possible are the two income-limited versions, and when you qualify for them, they usually beat both the standard 3 percent conventional option and FHA on monthly cost.
Key points:
- HomeReady (Fannie Mae) and Home Possible (Freddie Mac) allow 3 percent down on a conventional loan.
- Both cap your qualifying income at 80 percent of the Area Median Income (AMI) for the home’s location.
- Both come with reduced mortgage insurance coverage requirements and capped pricing adjustments, which typically means a lower monthly payment than standard conventional at the same down payment.
- Minimum credit score is generally 620, and first-time buyers complete a short homebuyer education course.
- Your entire 3 percent can come from gift funds, and TSAHC down payment assistance can stack with a conventional first mortgage for eligible buyers.
- PMI on these loans cancels once you build enough equity. FHA’s mortgage insurance usually stays for the life of the loan when you put less than 10 percent down.
What are HomeReady and Home Possible?
HomeReady and Home Possible are conventional loan programs from Fannie Mae and Freddie Mac that allow 3 percent down and are reserved for borrowers earning no more than 80 percent of their area’s median income. In exchange for the income cap, they charge lower mortgage insurance and cap the pricing add-ons that normally raise rates for smaller down payments. The two programs mirror each other closely, and your lender will match you to whichever fits your file better.
Think of them as the discounted lane of conventional lending. The discount exists because Fannie and Freddie have an affordable-lending mandate, and it is funded by design, so using it takes nothing away from the seller or the transaction.
Who qualifies? The 80 percent AMI test
You qualify on income if your total qualifying income is at or below 80 percent of the Area Median Income for the census tract of the home you are buying, and the limit follows the property, so the same buyer can pass in one neighborhood and miss in another. Fannie Mae and Freddie Mac both publish free lookup tools where you enter an address and see the exact dollar limit for that location.
A few points buyers miss:
- The test uses qualifying income on the loan application, not household income from everyone living in the home.
- AMI varies a lot across Texas. A salary that misses the cap in Travis County can clear it in parts of San Antonio, El Paso, or many smaller metros.
- A minimum 620 credit score generally applies, though pricing improves meaningfully with higher scores, subject to credit, income, and property qualifications.
- If no borrower on the loan has owned a home in the last three years, at least one completes a homebuyer education course (Fannie’s HomeView or Freddie’s CreditSmart, both online and inexpensive or free).
A composite example: a teacher couple in San Antonio earning a combined $78,000 wants a $260,000 house. If the AMI limit for that address is $80,400, they qualify. Their 3 percent down payment is $7,800, and every dollar of it can be a gift from family. I covered the documentation side in my post on gift fund rules by loan type.
How do they compare to Conventional 97 and FHA?
For a buyer who fits under the income cap, HomeReady or Home Possible usually wins on monthly cost. The standard 3 percent conventional option (often called Conventional 97) has no income limit but carries full-price mortgage insurance and pricing adjustments. FHA takes 3.5 percent down and is more forgiving on credit, but its mortgage insurance usually cannot be cancelled when you put less than 10 percent down.
| Feature | HomeReady / Home Possible | Standard Conventional 97 | FHA |
|---|---|---|---|
| Minimum down payment | 3% | 3% | 3.5% |
| Income limit | 80% of AMI | None | None |
| Mortgage insurance | Reduced coverage, cancellable | Full coverage, cancellable | Upfront 1.75% plus annual MIP, usually for the life of the loan at this down payment |
| Typical credit floor | 620 | 620 | 580 with 3.5% down |
| Education course | Required for first-time buyers | Not required | Not required |
| Gift funds for full down payment | Allowed | Allowed | Allowed |
The mortgage insurance line deserves the most attention. On a 3 percent down conventional loan, PMI drops off once your equity position supports it. On an FHA loan with the minimum down, the monthly MIP (mortgage insurance premium) generally stays until you refinance or sell. Over a decade, that difference adds up to real money. FHA still earns its place for buyers with thinner credit, and I walk clients through that tradeoff case by case.
What if your income is over the limit?
You still have a 3 percent conventional path. The standard Conventional 97 program has no income cap, and for stronger credit profiles the pricing difference against HomeReady is modest. My earlier guide to conventional down payment options in Texas compares the 3, 5, 10, and 20 percent tiers side by side.
Also check the other direction. Buyers who fit HomeReady’s income cap sometimes also fit TSAHC’s Home Sweet Texas program, which layers down payment assistance on top of a conventional or FHA first mortgage. I broke down how TSAHC’s statewide DPA works if you want the details. TSAHC funding is subject to availability and program guidelines.
How the payment math plays out
Rates move weekly, so treat any figure as a snapshot: the 30-year fixed averaged 6.43 percent for the week ending July 2, 2026 (Freddie Mac Primary Mortgage Market Survey), and income-limited programs price at or better than that benchmark for most qualifying files, though your quote depends on credit score, property type, and the day you lock. You can follow the current trend on my Texas mortgage rates page.
Where HomeReady and Home Possible pull ahead is the insurance stack. At 3 percent down with a mid-600s score, reduced-coverage PMI can run meaningfully cheaper per month than standard-coverage PMI on the same loan, and the capped pricing adjustments protect the rate itself. At Mortgage Austin we price both agencies’ versions against FHA on every eligible file, because the cheapest program on paper is not always the cheapest for a specific borrower.
Frequently Asked Questions
What income counts toward the HomeReady limit?
Only the qualifying income of the borrowers on the loan application counts toward the 80 percent AMI cap. Income from a spouse or roommate who is not on the loan generally does not count against the limit. HomeReady can also consider rental income from a boarder in some situations, documented per Fannie Mae guidelines.
How do I find the income limit for a specific Texas address?
Fannie Mae and Freddie Mac both publish free AMI lookup tools online. Enter the property address and the tool returns the exact 80 percent AMI dollar limit for that census tract. Your loan officer can run it for any address you are considering, and the limit follows the property rather than your current residence.
Can I use HomeReady or Home Possible with bad credit?
The practical floor is a 620 credit score for these conventional programs. Between roughly 620 and 680, FHA often prices better because its rates are less sensitive to credit score. Above that range, the conventional programs usually win on total monthly cost. Approval is always subject to credit, income, and property qualifications.
Do I have to be a first-time buyer to use these programs?
No. You can use HomeReady or Home Possible even if you have owned before, as long as you meet the income limit and occupy the home. The homebuyer education requirement applies when all borrowers are first-time buyers, and the course takes a few hours online.
Can the whole 3 percent down payment be a gift?
Yes. On a one-unit primary residence, HomeReady and Home Possible both allow the entire down payment and closing costs to come from gift funds from an acceptable donor, usually a family member. The gift needs a signed gift letter and a documented transfer trail.
Is the mortgage insurance on these loans cheaper than FHA?
Often, but it depends on credit score. HomeReady and Home Possible use reduced-coverage private mortgage insurance that cancels once you have enough equity. FHA charges a 1.75 percent upfront premium plus a monthly premium that usually lasts the life of the loan at 3.5 percent down. For buyers with scores around 680 or higher, the conventional programs typically cost less over time.
If you are not sure which 3 percent path fits your income and credit picture, that is a ten-minute conversation. Reach out and let’s talk through your options, no pressure and no obligation.
Anthony Ferrando | Mortgage Loan Originator | NMLS# 1919613 | Ferrando Financial LLC NMLS# 2403080 | Licensed in Texas. This is not a commitment to lend. Loan approval is subject to credit, income, and property qualifications. Program terms, income limits, and mortgage insurance pricing are set by Fannie Mae, Freddie Mac, and individual insurers and may change. TSAHC funding subject to availability; eligibility and DPA amount subject to TSAHC program guidelines; not all borrowers will qualify. Rate figures are from Freddie Mac’s Primary Mortgage Market Survey, week ending July 2, 2026, are illustrative only, and are not a quote or an offer of credit. Equal Housing Lender.
