HomeOne® vs FHA: Which Is Better for First-Time Buyers?

HomeOne® vs FHA Overview

Freddie Mac’s HomeOne® mortgage and the FHA’s standard 203(b) loan both make homeownership more accessible with low down payments, but they differ in key ways such as credit score, mortgage insurance, property eligibility, and interest rates.

HomeOne® vs FHA: Side-by-Side Comparison

Down Payment Differences

One of the biggest differences between the HomeOne® and FHA mortgage is the required down payment size for home buyers.

With HomeOne®, the minimum down payment is 3%. So, if you buy a $400,000 home and finance it with a HomeOne® mortgage, the required down payment is $12,000. You can always put down more.

With FHA loans, the required down payment a 3.5 percent, which would be $14,000 on the same $400,000 homes.

For buyers with credit scores below 580, FHA loans require a 10% down payment instead of 3.5 percent..

Minimum Down Payment Comparison: HomeOne® vs FHA

Both HomeOne® and the FHA let buyers receive or combine cash gifts and down payment assistance to make up 100% of their down payment and closing costs.

Mortgage Insurance

Mortgage insurance works differently between HomeOne® and FHA.

HomeOne® requires private mortgage insurance (PMI) when buyers put less than 20% down on their home only. Once their home reaches 20% PMI equity, the insurance can be canceled.

FHA loans require mortgage insurance premiums (MIP) regardless of down payment or equity, and the FHA charges an upfront MIP payment at the time of closing, too. FHA mortgage insurance does not cancel at 20% equity — it remains for as long as the loan exists.

HomeOne® PMI:

• Required with less than 20% down
• Cancellable at 20% equity
• Cost depends on credit score and loan size
• Learn more in our PMI Rules for HomeOne®

FHA MIP:

• Required on all FHA loans
• Often lasts for the life of the loan unless you refinance
• Includes a 1.75% upfront fee plus monthly premiums

PMI vs MIP Cost Comparison: HomeOne® and FHA

Here's how monthly HomeOne® PMI costs compare to FHA MIP at different credit scores. Remember that FHA MIP lasts for the life of your loan, and Conventional 97 MIP goes away at 20% equity.

Home buyers who expect to move or sell in the next few years may find FHA loans appealing. Those planning to stay in their home long-term or who want the option to remove mortgage insurance later may benefit from HomeOne®, since its PMI can be cancelled at 20% equity.

Credit Score Requirements

Credit score requirements are another big differences between HomeOne® and FHA.

HomeOne® requires a minimum credit score of [conventional-homeone-min-fico not found] . Borrowers with higher scores often qualify for better loan terms and lower PMI.

Consider a first-time home buyer with a 680 credit score who qualifies for HomeOne® with just 3% down ($7,500). PMI can be cancelled once 20% equity is reached.

Then, consider another first-time buyer whose credit score is 610. This buyer does not qualify for HomeOne® but may be able to use FHA financing with a 3.5% down payment of $8,750.

Property Type Flexibility

HomeOne® and the FHA have different rules for property types.

HomeOne® is available only for one-unit primary residences, such as a single-family homes, townhomes, or warrantable condos. Manufactured homes do not qualify for HomeOne®, but may be eligible for MH Advantage.

FHA loans offer more flexibility. FHA financing is available for 1-unit homes and 2–4 unit properties, too, so buyers can live in one unit and rent out the others to help with their payments. FHA also allows certain manufactured homes.

HomeOne® vs FHA: Property Type Eligibility

Which Is Better for First-Time Buyers?

The right choice between HomeOne® and FHA depends on your credit, savings, and the type of home you want to buy. Here’s how to think about it:

HomeOne® may work well if:

• Your credit score is 620 or higher
• You want to remove PMI once you reach 20% equity
• You’re buying a single-family home, townhome, or warrantable condo

FHA may be a fit if:

• Your credit score is below 620
• You need more flexible debt-to-income rules
• You want to buy a 2- to 4-unit property or a manufactured home

If you’re looking for ways to cover your upfront costs, check out Gift Funds for HomeOne® and Down Payment & Closing Costs.

Key Takeaway

HomeOne® helps first-time buyers purchase a home with a low down payment. The best choice between HomeOne® and FHA depends on your credit, the type of home you want, and your long-term plans. Ask your lender to compare costs for your situation.