Down Payment and Closing Costs for a HomeReady Loan

Down Payment and Closing Costs Overview

HomeReady loans require a minimum 3% down payment. In addition, buyers should budget for closing costs, which averaged 1.54% across all conventional purchase loans in 2024.

Buyers can use gift funds, housing grants, down payment assistance programs, and seller-paid credits to reduce their upfront expenses.

Minimum Down Payment Requirement

The minimum down payment for a HomeReady mortgage is 3% of the home's purchase price, which applies to all property types including single-family homes, condos, townhomes, and 2-4 unit properties.

Here are some example down payment amounts based on purchase price:

• $100,000 purchase price = $3,000 down
• $200,000 purchase price = $6,000 down
• $300,000 purchase price = $9,000 down

As a buyer, you can choose to make a down payment larger than 3%, which will lower your loan amount and reduce your monthly PMI costs. There are no restrictions on your downpayment size as long as it's at least 3%.

Note: For certain scenarios — such as manufactured homes or when no borrower has a credit score — maximum LTV may be reduced for 2–4 unit properties.

Typical Closing Costs

Closing costs are the fees and expenses you pay to complete your mortgage. For most conventional loans, buyers see closing costs around 1.5% of the purchase price. This is usually lower than what you’d pay for USDA or FHA loans, which may run 3–5%.

Typical closing costs may include:

• Lender origination or underwriting fees
• Appraisal charges
• Title insurance and settlement services
• Recording fees
• Prepaid property taxes
• Prepaid homeowners insurance

Every mortgage lender sets their own fees, so ask for a closing cost estimate when you shop for your loans.

Conventional Mortgage Closing Costs by Year

This table shows average mortgage closing costs for conventional purchase mortgages since 2018:

Using Gift Funds

HomeReady allows buyers to use cash gifts to pay for some or all of their down payment and closing costs. Cash gifts for downpayment must come from a legitimate source with no repayment required.

Eligible HomeReady donors include:

• Family members
• Fiancé(e) or domestic partner
• Employer
• Approved nonprofit or community organization

Ineligible donors include:

• The home seller
• The builder or developer
• The real estate agent or broker

Specific Examples of Gift Fund Sources for HomeReady

If you have questions about whether a donor is allowed, ask your lender before accepting funds. If you accept funds improperly, they cannot be used in your purchase.

Documentation Needed for Gift Funds

Lenders need to check that gift funds are truly a gift and not a loan before you use them for your HomeReady down payment or closing costs. This helps make sure the money comes from the right source and doesn’t have to be paid back.

Most lenders will ask for:

• A gift letter from the donor that lists the gift amount, explains your relationship, and confirms you don’t have to repay the money.
• Proof that the funds moved from the donor’s account to yours or straight to the closing agent.

Getting these documents together early may help keep your loan process on track.

What you’ll need for a cash gift

Ways to Reduce Your Cash to Close

HomeReady buyers can lower their upfront costs through two main options: seller credits and down payment assistance (DPA). Seller credits and down payment assistance can often be combined.

Seller Credits

With a HomeReady loan, sellers can help reduce your upfront costs on the purchase by giving up to 3% of the home’s purchase price toward your closing costs and prepaid expenses. The credit is paid at closing.

This is sometimes called a seller concession in your purchase contract.

Seller credits can only be used to offset costs linked to the purchase:

• Lender fees
• Title and escrow charges
• Prepaid property taxes
• Homeowners insurance

Seller credits may not be used for:

• Your down payment (the 3% minimum required for HomeReady)
• Cash back to you at closing
• Repairs or home improvements not required by the lender

Eligible vs. Ineligible Seller Credit Usage

Seller credits may only be used for closing costs and prepaid items tied to the home purchase, and may not exceed the total of a buyer's actual costs. If you’re unsure whether a specific seller credit is allowed, ask your lender before making plans.

Down Payment Assistance

Many state and local programs offer grants or low-interest loans for down payment and closing costs. HomeReady loans can be paired with these programs so long as you still meet income and property eligibility rules.

For example, say you qualify for $5,000 in down payment assistance from your state housing agency and negotiate $6,000 in seller credits to cover closing costs. If your total closing costs and down payment add up to $11,000, these combined funds may cover every costs related to your purchase. In this case, you would not wire any funds to closing — your cash-to-close would be paid via your combined DPA and seller credit.

Check with your state housing agency or local housing authority for available programs, or start with our Down Payment Assistance Guide.

Key Takeaway

HomeReady makes buying a home more affordable with a 3% minimum down payment and flexible ways to cover closing costs. You can use gift funds, seller credits, and down payment assistance programs to reduce — or even eliminate — the cash you need at closing.

See our HomeReady Complete Guide for all program details.