HomeReady

What is a HomeReady mortgage?

HomeReady allows borrowers to make a low down payment as little as 3 percent, either for a homebuying or refinancing transaction. Borrowers are also entitled to use a flexible source of funds for both the down payment and closing costs. HomeReady does not require a minimum contribution to come from the borrower’s own source of funds.

Because HomeReady allows borrowers to make a small down payment, they are required to purchase mortgage insurance, which is a premium that will be added into mortgage payments. HomeReady’s mortgage insurance is affordable and under certain circumstances, it is cancellable. Generally, in order to eliminate mortgage insurance, a borrower’s loan-to-value (LTV) ratio must be above 90 percent. However, this ratio and restrictions can vary from lender to lender.

What are HomeReady requirements?

HomeReady is available to those who are purchasing or refinancing a single-family home. In order to qualify, borrowers need to meet income limits and the property location must be marked in a low-income area. Fannie Mae utilizes an income eligibility tool to look up the qualified income requirement based on the home’s address.

Borrowers that decide to use HomeReady are required to complete an educational course that helps them prepare for the mortgage process. It is required by Fannie Mae, so borrowers know what to expect as a future homeowner. This also gives lenders reassurance borrowers are informed and knowledgeable of how this process works.

HomeReady requires at least one person from the purchase transaction to complete the online educational program. The program is offered in English or Spanish and is continuously receiving good reviews from users. HomeReady’s educational program is designed to help future homebuyers navigate through the mortgage process with a clear understanding and confidence.

HomeReady also requires borrowers to receive housing counseling from a Housing Urban Development (HUD) agency. The agency must be a HUD-approved nonprofit housing counseling organization. This requirement is intended to further educate borrowers and prepare them for homeownership. The education provided within this program illustrates the importance of wisely managing your money so mortgage payments, in addition to other home-related costs, are taken care of in a timely manner.

What are HomeReady income limits?

In order to be eligible for a HomeReady loan, Fannie Mae requires lenders to look up the area and property address to make sure it meets HomeReady income eligibility requirements. The income limit varies from each area. HomeReady borrowers are not allowed to exceed past the income limit for that area.

To find the HomeReady income limit for a specific area, Fannie Mae created a HomeReady Income Eligibility Lookup tool that provides lenders and other housing professionals research the accurate allowed limit.

When borrowers or professionals look up the property, a map will be displayed that shows the income limit for that specific area and address. The map data will also include the following:

• HomeReady area median income (AMI)
• Eligibility status (either 100% of AMI or no income limit for low-income census tracts
• The city, county and state; and
• The Federal Information Processing Standards (FIPS) code, which is a unique code assigned to all geographical areas

What is a HomeReady matrix?

HomeReady is a special loan program that is designed to help low to moderate creditworthy borrowers. Borrowers can become eligible depending on the property’s address, area and income limit amount. Fannie Mae has created a product matrix that clearly illustrates the program’s eligibility requirements, property type, income limit, mortgage insurance coverage and more. Below is Fannie Mae’s official PDF that covers everything you need to know: here

What are HomeReady seller concessions?

Seller concessions is a formal agreement between a buyer and seller that states the seller has agreed to pay part or all of the buyer’s closing costs.

Others refer to seller concessions as either as an Interested Party Contributions (IPC), Seller Contributions, or a Seller Assist. Whichever term your lender uses, they all mean the same thing – refers to a buyer’s closing costs to be paid for either by the seller or third-party company.

HomeReady does not require borrowers to bring any additional funds to closing. This mortgage program allows borrowers to use gift money or receive funds from a third-party company to cover the down payment. It also allows borrowers to settle an agreement between the seller, known as a seller concession, to pay for the buyer’s closing costs during the time of the transaction.

What is the difference between HomeReady and HomePossible?

First off, HomeReady is offered by Fannie Mae and HomePossible is offered by Freddie Mac. They both are somewhat similar programs that allow borrowers to finance a mortgage without making a large down payment. However, there are some differences between the two that could affect your mortgage experience.

For example, a borrower’s contribution toward the transaction differs between the two programs. HomeReady requires borrowers to contribute a minimum of three percent of the purchase price when buying a multifamily property. HomePossible requires no minimum contribution when purchasing a one to four-unit house.

Both programs require borrowers to purchase the home as the primary residence; not a vacation or rental house.

The household income also differs between the two programs. HomeReady takes into account of non-borrower income as a contributing factor. This additional source of income could help on the boarder applicants get approved.

HomePossible does not consider non-borrower income. This means, the resident’s income who is obligated by the loan is the only source that matters.

Finally, both programs require borrowers to complete an educational course that prepares applicants for homeownership. The agency must be approved by your chosen provider. There are some exemptions to opt out of the educational program, but you will need to talk to your lender.

What is the difference between HomeReady and FHA?

From a glance, both HomeReady and FHA mortgage loans are designed to help borrowers who have some financial challenges, such as being unable to put down 20 percent or having limited income. Both programs make the reality of buying home achievable by offering affordable financing and appealing benefits. However, there are certain distinctions between the two that can benefit borrowers better than the other.

For example, a borrower’s credit score will affect what kind of loan they are more eligible for. An FHA loan requires borrowers to have a minimum credit score of 580 in order to put down 3.5%, or as low as 500 if their down payment is 10%. On the other hand, with a HomeReady mortgage, a borrower’s minimum credit score can be 620, depending on their financial history and details of their desired loan.

Future homebuyers also turn to finance an FHA or HomeReady mortgage because it allows borrowers to make a down payment less than the standard 20 percent. With an FHA loan, borrowers can make a down payment as little as 3.5% if their credit score is greater than 580, or as little as 10% if their credit score is between 500 and 579. With a HomeReady loan, borrowers can make a down payment as little as 3% of the property’s purchase price.

A borrower’s debt-to-income (DTI) ratio is also calculated and factored into their eligibility of getting approved for either loan. A borrower’s DTI is the number they would get when they divide all their monthly debts by their gross monthly income. Generally, the lower your DTI ratio, the more financing options will be available to you.

With an FHA loan, the DTI limit is 43%. However, under some circumstances, some lenders may allow a DTI up to 50%. With a HomeReady loan, the DTI limit is up to 50%. This option offers extreme flexibility and make it easier for low income families purchase a home.

Lastly, both FHA and HomeReady mortgages are available to both first-time and repeating homebuyers for their primary residence. However, there is an income limit with a HomeReady loan. The income limit depends on the location and area of your property. To be eligible for a HomeReady loan, borrowers must purchase a home within a neighborhood with no income limit or have an income below the median income of that specific neighborhood. On the other hand, borrowers financing an FHA loan have no income limits to be considered eligible.