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The Fannie Mae HomeReady First Mortgage Revamped for 2024 to help more First Time Home Buyers.

Looking for an affordable mortgage option? The Fannie Mae HomeReady program, also known as the Fannie Mae Home Ready program, may be the solution. It provides low down payment options and flexible income criteria for low—to moderate-income borrowers. This article cuts through the complexity to explain how you can qualify and the benefits that make HomeReady an attractive choice.

Key Takeaways

  • The HomeReady FIRST mortgage program offers low down payments as little as 3% and includes non-traditional credit data for eligibility, aiming to help low to moderate-income borrowers become homeowners

  • Borrowers can qualify for the HomeReady program by meeting certain income limits, having a minimum credit score of 620, and completing an approved homebuyer education course, with potential rental income contributing to eligibility.

  • HomeReady mortgages provide major benefits, such as a $5,000 grant for very low-income borrowers, cancellation of mortgage insurance upon reaching 20% equity, and competitive rates on fixed and adjustable mortgages.

  • $500 towards appraisal costs

  • NO INCOME LIMITS in up to 21 Metropolitan Statisitcal Area’s (MSAs). Borrower’s current primary residence mut be in an eligible census tract

Exploring the HomeReady Mortgage by Fannie Mae

Illustration of a house with a key, representing homeownership

Launched in December 2015, the HomeReady mortgage program replaces the MyCommunityMortgage with a fresh approach to mortgages for low to moderate-income borrowers. This unique program offers an attractive low down payment, broadening eligibility to include first-time and repeat buyers who meet the income limits.

HomeReady is more than just a mortgage program; it fosters a sense of belonging by making homeownership attainable. With over a million people becoming homeowners yearly, this program is making homeownership a reality for those who never expected to own a home.

The Attraction of Low Down Payments

One key feature that makes low down payment mortgages, such as HomeReady mortgages, attractive is the low required down payment. Traditional mortgages may require up to a 20% down payment, but HomeReady mortgages have down payments as low as 3%. This significant reduction in upfront costs makes homeownership a more realistic goal for many potential homeowners.

Furthermore, HomeReady assists low-income borrowers by providing a $5,000 credit to help cover down payment and closing costs, edging them closer to their dream home.

Broadening Borrower Eligibility

HomeReady recognizes the value of non-traditional credit data, which expands borrower eligibility. In an innovative approach to mortgage consideration, applicants without a credit score can establish a credit history through alternative means, such as utility and cell phone bill payments.

This initiative offers a lifeline to those struggling to reach the property ladder due to insufficient credit history.

The Nuts and Bolts of HomeReady Loan Qualification

Illustration of income considerations and limits

Qualifying for a HomeReady mortgage loan involves a few key factors:

  1. A minimum credit score of 620 is required.

  2. Eligibility is determined based on income limits relative to the area median income, of where the first-time home buyer currently lives, ensuring access primarily to low to moderate-income individuals.

  3. Borrowers must complete a HUD-approved homeownership education course to qualify for a HomeReady mortgage.

Moreover, if you have attached rental units, the potential rental income can count towards your eligibility, which increases your chances of qualifying for the HomeReady mortgage.

Income Considerations and Limits

Regarding Homeready income limits and considerations for the HomeReady program, it’s all about ensuring access to those who need it most. Borrowers must earn 80% or less than their area’s median income to be eligible for the HomeReady mortgage program. To ensure a comprehensive assessment of income, HomeReady accounts for a variety of income types in its qualification process, including:

  • wages

  • self-employment income

  • pensions

  • child support

  • rental income

Credit Score Insights

Credit scores play a key role in loan qualification. HomeReady mortgages require a minimum credit score of 620, which is lower than the Home Possible program’s requirement of 660. This flexibility can make a significant difference for those with less-than-perfect credit scores.

For refinancing with HomeReady, at least one borrower must have a credit score, providing further flexibility for borrowers.

Benefits of Choosing a HomeReady Mortgage

Illustration of reduced mortgage insurance premiums

HomeReady mortgages come with many benefits designed to make homeownership more affordable. Some of these benefits include:

  • A $5,000 credit to assist very low-income borrowers with down payment and closing costs

  • Reduced mortgage insurance premiums

  • The option to cancel mortgage insurance premiums once 20% home equity is reached, resulting in significant monthly savings

These benefits can help ease the financial burden of homeownership and make it more accessible for borrowers seeking a home loan.

Furthermore, HomeReady loans offer competitive pricing options compared to standard mortgage rates, ensuring affordability.

Canceling Mortgage Insurance

One of the standout benefits of the HomeReady program is the option to cancel mortgage insurance. Unlike FHA loans, which typically require refinancing to remove mortgage insurance unless the initial down payment is above 10%, HomeReady mortgage insurance can be canceled without refinancing once the borrower meets the requisite equity threshold. This is possible when the equity in the home reaches 20%, corresponding to a loan-to-value ratio of 80%.

This feature can result in significant cost savings, reducing monthly housing expenses.

Emphasizing Education in Homeownership

HomeReady places a strong emphasis on education in homeownership. As part of the qualification process, first-time homebuyers seeking a HomeReady mortgage must complete a homebuyer education course.

This requirement underscores the program’s dedication to informed homeownership, arming borrowers with the necessary knowledge to navigate the home-buying process successfully.

Understanding Your Loan Options: Fixed Rate vs. Adjustable Rate

Illustration of fixed-rate vs. adjustable-rate mortgages

HomeReady mortgages allow borrowers to choose between fixed-rate and adjustable-rate mortgages (ARMs). Depending on your financial situation and long-term goals, one option may be more suitable.

Understanding the advantages and disadvantages of each option is crucial for making a decision that matches your homeownership goals.

Fixed-Rate Mortgage Advantages

Choosing a fixed-rate mortgage under the HomeReady program provides stability in repayment terms. Unlike USDA loans, which only offer a 30-year term, HomeReady offers a range of fixed-rate mortgage options. This means your mortgage interest rate and monthly payments remain the same throughout the life of the loan, offering predictability and peace of mind.

Short-term fixed-rate loans could lead to lower interest rates, potentially resulting in substantial mortgage interest savings over the loan’s life. This can be an important factor when selecting a payment mortgage plan.

Adjustable-Rate Mortgage Considerations

Adjustable-rate mortgages (ARMs) are another option available under the HomeReady program. These include five-year, seven-year, and ten-year ARMs, all structured as 30-year loans. Though the introductory interest rate on an ARM is typically lower than that of a fixed-rate mortgage, it can increase or decrease in the future based on market conditions.

Hence, this option might be ideal for individuals planning to sell or refinance their home before the introductory rate period ends.

Steps to Securing a HomeReady Mortgage Loan

Illustration of loan application process

Securing a HomeReady mortgage involves a few key steps. First, you must confirm you meet the HomeReady qualifications, including income limits, credit score requirements, and completing a mandatory homeownership course. Once you’ve confirmed your eligibility, the next step is to select a mortgage lender. It’s important to note that HomeReady loans are provided directly by private lenders and not by Fannie Mae.

Once a lender is chosen, the loan application process involves the following steps:

  1. Complete the loan application form.

  2. Provide the necessary supporting documents, such as income statements, bank statements, and identification.

  3. Submit the application and documents to the lender.

  4. The lender will evaluate your application and determine your approval status, mortgage rates, and loan amount.

Comparison Shopping for Lenders

When choosing a lender for your HomeReady mortgage, it pays to shop around. Lenders may offer different interest rates and loan terms, even for the same loan amount. Lenders participating in the HomeReady program offer competitive pricing and improved commitment options that can benefit both the lender and the borrower.

Assessing various lender options, including local, national, and online lenders, can help you secure the most favorable mortgage terms for your needs.

The Application Process Demystified

The application process for a HomeReady mortgage requires accurate documentation and a thorough review of financial information. You’ll need to provide documents including:

  • Tax returns

  • W-2 forms

  • Pay stubs

  • Bank statements

These documents validate your financial information. Fannie Mae simplifies this process by utilizing an automated system for real-time income verification, streamlining the application process, and improving the accuracy of income assessment.

A swift and efficient application process propels you closer to securing your dream home.

Alternatives to HomeReady Mortgages

While the HomeReady mortgage program offers many benefits, it’s not the only option for low—to moderate-income borrowers. Alternatives to HomeReady mortgages include FHA loans and the Freddie Mac Home Possible program, which offer different down payment terms and credit score requirements. These alternatives could be worth exploring, depending on your specific needs and financial situation.

Comparing HomeReady to FHA Loans

When comparing HomeReady to FHA loans, there are a few key differences to note:

  • HomeReady loans require a minimum down payment of 3%

  • FHA loans have a slightly higher minimum down payment requirement of 3.5%

  • FHA loans allow for lower credit scores, providing more flexibility for those with lower credit scores compared to the HomeReady program.

Another point to note is that FHA loans, backed by the Federal Housing Administration, differ from HomeReady loans, which are not government-backed. FHA loans offer more flexibility with down payments and credit history. When considering an FHA loan, it’s essential to understand the differences and requirements compared to other mortgage options.

Other Conventional Loan Alternatives

Other conventional alternatives to HomeReady mortgages besides FHA loans include Freddie Mac’s Home Possible program. Like HomeReady, the Home Possible program targets low—to moderate-income borrowers and permits a down payment as low as 3%. However, the program requires a 5% down payment, higher than the HomeReady mortgage.

It also offers discounted Private Mortgage Insurance (PMI) and does not mandate a minimum credit score for applicants with no credit history.

Special Considerations for Refinancing

If you’re already a homeowner and considering refinancing your current mortgage, the HomeReady program offers some unique benefits. HomeReady mortgages allow borrowers to refinance with limited cash-out options if they have as little as 3% equity for Fannie Mae-owned loans or 5% for non-Fannie Mae-owned loans.

It’s important to note that the property must be your principal residence to be eligible for a limited cash-out refinance.

Refinancing with HomeReady

Refinancing with a HomeReady mortgage offers several advantages, including:

  • Refinancing options with loan-to-value ratios of up to 97% under certain conditions

  • Fixed-rate mortgages with terms up to 30 years when refinancing with a HomeReady mortgage where the loan-to-value range is between 95.01% and 97%

  • The refinanced property must be a one-unit principal residence

This guarantees that you can reap the benefits of refinancing while preserving the certainty of a fixed-rate mortgage.

Making Home Buying More Accessible: Additional Features of HomeReady

Beyond the features already discussed, the HomeReady program offers additional measures to make home-buying more accessible. These enhancements include support for various property types, Community Seconds financing for down payment assistance, and accessory dwelling units (ADUs) financing.

Community Seconds and Down Payment Assistance

One of these additional features is the Community Seconds option. This secondary financing option can assist with down payment and closing costs, making the upfront costs of homeownership more manageable.

HomeReady borrowers can benefit from a combined loan-to-value ratio of up to 105%, allowing Community Seconds to cover down payment and closing costs.

Financing for Accessory Dwelling Units

Another distinctive feature of the HomeReady program is its acknowledgment of income generation potential from accessory dwelling units (ADUs), like basement apartments or separate living structures on single-home lots. The revenue potential from ADUs can be utilized when considering mortgage eligibility under the HomeReady program.

Plus, financing for developing or remodeling a property, including an ADU, can be obtained through the HomeReady mortgage program.

Summary

To sum up, the HomeReady mortgage program by Fannie Mae is a game-changer for potential homeowners. With low down payments, flexible credit criteria, an emphasis on homeownership education, and additional features for further accessibility, HomeReady is paving the way for a more inclusive homeownership landscape. Whether you’re a first-time homebuyer or looking to refinance, HomeReady offers a range of options to make homeownership a reality.

Frequently Asked Questions

Who can qualify for a HomeReady mortgage?

Anyone who meets the income limits, whether they are first-time or repeat buyers, can qualify for a HomeReady mortgage.

How low is the down payment for a HomeReady mortgage?

A HomeReady mortgage’s down payment can be as low as 3%, making it an attractive option for homebuyers.

Can I apply for a HomeReady mortgage without a credit score?

By establishing a credit history through non-traditional means, you can apply for a HomeReady mortgage without a credit score.

Can I refinance my current mortgage with a HomeReady mortgage?

You can refinance your current mortgage with a HomeReady mortgage if you have as little as 3% equity for Fannie Mae-owned loans or 5% for non-Fannie Mae-owned loans.

Can I include the potential income from an accessory dwelling unit (ADU) in my HomeReady mortgage application?

To improve your eligibility, you can include the potential income from an accessory dwelling unit (ADU) in your HomeReady mortgage application.

About the Author

Brian Quigley
Brian Quigley
 NMLS# #244003

Brian Quigley has been in the Denver mortgage industry since 2003. Customer satisfaction has been his top priority while guiding clients through the home loan qualification process. He is proficient in all types of mortgage financing including FHA/VA, Conventional, USDA, Jumbo, Portfolio, 1031 Exchanges, Reverse Mortgages, Refinancing, Construction loans, and FHA 203K loans.

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