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HomeReady Mortgage: Qualification Guidelines & FAQ

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 down payment?

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 the home?

Yes, you can only use HomeReady to buy an owner-occupied home. You cannot use it to buy a second home or a rental property.

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 available?

You can get 10-, 15-, 20- or 30-year fixed rate mortgages, and you can also get 5-, – and 10-year adjustable rate mortgages.

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 insurance?

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 counseling requirements?

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 qualify?

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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Posted by Jackie A. Graves, President on January 17th, 2018 8:00 AM

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