January 17th, 2018 8:00 AM by Jackie A. Graves, President
The Fannie Mae HomeReady Mortgage is
designed for home buyers who don’t fall into typical lending approval
guidelines. If you have a low down payment, need to use income from a household
member who’s not on the loan, need to have a co-signer, or need to use income
from renting out a room in the home you’re buying, the HomeReady mortgage might
be right for you.
Below are some frequently asked questions
about how the HomeReady program works, and how you qualify.
What is the minimum
You must put at least 3 percent down if you’re
buying a one-unit property, 15 percent down if you’re buying a two-unit
property, or 25 percent down if you’re buying a three- or four-unit property.
What are acceptable
sources of down payment and closing costs?
For the down payment, you can use gift funds
or cash on hand if you’re buying a one-unit property, and none of the funds
have to come from you. The eligibility of cash as a source of down payment is
rare in lending guidelines, and one of the great benefits of this loan.
What kind of property
can I buy?
You can buy a single-family home, condo,
townhouse, or manufactured home — but if you buy a manufactured home, you must
put 5 percent down. You can also buy a two- to four-unit property as long as
you’re living in one of the units.
Do I have to live in
Yes, you can only use HomeReady to buy an
owner-occupied home. You cannot use it to buy a second home or a rental
Can I use HomeReady to
buy a new home if I already own another home?
No. You cannot own any other home in U.S –,
but you can own another commercial property in the U.S.
What kind of loans are
You can get 10-, 15-, 20- or 30-year fixed
rate mortgages, and you can also get 5-, – and 10-year adjustable rate
Are the rates higher
than normal mortgages?
Conversely, rates are lower than other Fannie
Mae conforming loans that allow such small down payments.
Will I have mortgage
Yes, if you put less than 20 percent down, you
will have mortgage insurance. But the mortgage insurance fees will be slightly
lower than mortgage insurance on other low-down Fannie Mae loans, and
materially lower than mortgage insurance on FHA loans. The mortgage insurance
goes away when you pay your loan down to 80 percent of the purchase price.
Whose income can be
used to qualify?
If your income alone isn’t enough to qualify,
you can add occupying or non-occupying co-borrowers to the loan. Lenders will
also take into account income documentation (paystubs and W2s, for example) of
people who won’t be on the loan but that will verify in writing that they’ll be
living in the home with you for at least 12 months. Check with your lender on
whether it formally counts this into your debt-to-income ratio calculation or
if it is just using it as an added consideration (called a “compensating
factor”) to help make a decision.
Can I use rental
income from a room in the house to qualify?
Yes. This is another great benefit of
HomeReady. It’s very rare to count income from a home you’re living in to
qualify for a loan, but this program lets you do it.
What kind of credit
score do I need to qualify?
You need decent credit scores to take
advantage of minimum down payment options. For example, you need a 680 score if
you have a debt-to-income ratio of 36 percent or less to qualify. But if your
income is tighter (where your debt-to-income ratio is 36.1 percent to 45
percent), you need a 700 credit score to qualify for low-down options.
Do I have to make less
than a certain amount to be eligible for HomeReady?
Your income isn’t capped when buying a
property in a low-income area. Your income will be capped at 100 percent of
area median income when buying a property in an area where the minority
population is at least 30 percent, or where the federal government has
designated a disaster area. And in areas other than these, your income will be
capped below those areas’ median income levels to leave room for those who need
the program the most. You can look up income limits by state maps or by ZIP code.
Are there homebuyer
Yes, you must take a four- to six-hour online
homeowner counseling course to qualify. After you complete your course, you
have six months to submit a HomeReady mortgage application.
HomeReady has a lot of
very specific borrower and property requirements. How do I find out if I
It’s true that this loan, while highly
beneficial to borrowers, does have a lot of fine print for borrowers and for
property locations. If you’re interested in a HomeReady loan, find a lender in
your area to advise you on your specific profile.
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