Benefits of a HomeReady Mortgage
Aside from having lower costs, the primary difference between HomeReady mortgages and other conventional home loans is that their flexible approval process allows for co-borrowers as well as contributions from others living in your home.
HomeReady Mortgage Definition
HomeReady mortgages are a line of conventional home loans offered by Fannie Mae that are meant to help low- and moderate-income borrowers buy or refinance. HomeReady loans reduce the typical down payment and mortgage insurance requirements, but they're also more flexible about allowing contributions from other people. This makes HomeReady an ideal choice if you're relying on others to help fund your home purchase.
- Where can you find HomeReady Mortgage Lenders?
- Benefits of a HomeReady Mortgage
- Requirements for a HomeReady Mortgage
Finding a More Affordable Mortgage Insurance Premium
Compared to programs like FHA loans, HomeReady helps you minimize and eventually eliminate mortgage insurance premiums more swiftly. While FHA borrowers will run into both upfront and monthly premiums, Fannie Mae doesn't include an upfront premium as part the HomeReady closing costs. This means that a HomeReady loan allows you to spend more on your down payment, which in turn increases the amount you can afford to borrow.
HomeReady loans are also more advantageous in terms of their monthly insurance premiums. FHA loans don't allow you to cancel mortgage insurance short of refinancing into a conventional mortgage. In contrast, a HomeReady mortgage will give you the option of eliminating mortgage insurance once you build up enough equity —just like any other conventional mortgage loan. In short, the HomeReady mortgage is a way to access low down payments without sacrificing your ability to reduce mortgage insurance costs.
Finding HomeReady Mortgage Lenders:
While Fannie Mae designs and sets the rules for HomeReady mortgages, the loans themselves are provided through national and local mortgage lenders such as banks. While the program is available to any Fannie Mae-approved lender in the US, there's no requirement for every such lender to participate in HomeReady. The easiest way to find a local mortgage lender providing HomeReady mortgages is to work through a mortgage broker,whose job involves connecting borrowers with lenders who carry the products they need.
Process For Approval is Flexible
HomeReady mortgages provide the greatest benefit to people who plan to share the costs of the loan with other family members. Most mortgage lenders base their approval process solely on the borrower's personal income. For HomeReady loans, Fannie Mae permits non-occupant co-borrowers to add their financial support to the process. This means that parents or relatives can help boost a borrower's chances of securing approval for a mortgage, even if they don't plan on living in the purchased property.
Even if you don't have any co-borrowers, the HomeReady loan will count the contribution of people living with you as compensating factors. While their incomes won't be added to yours in the approval process, they can help you secure approval in situations where your debt-to-income ratio is higher than normal. This includes not only immediate family members but also roommates and boarders who can prove that they've been with you for at least one year. If your new home has any detached living units like a basement apartment, you can also propose to find a tenant and add the estimated rent as part of your income in the application.
Qualifications for a HomeReady Mortgage
While you don't have to be a first-time homebuyer to qualify for a purchase or refinance with HomeReady, there are a variety of other financial requirements you'll need to fulfill.
HomeReady Mortgage Requirements:
(1) Participation in homeownership education
(2) Minimum credit score of 620
(3) Income less than or equal to the area median income (AMI)
List of Advantages of a HomeReady Mortgage:
1) Lowers down payment and credit score requirements
2) Reduces mortgage insurance and allows you to cancel at 80% LTV
3) Allows you to accept larger gifts in down payment and closing
4) Income from others in your house can help you get approved
5) Permits family or friends to co-sign on your home loan
The AMI of your home address is determined according to US Census tracts, which you can look up on Fannie Mae's HomeReady eligibility page.So long as your personal income isn't higher than the AMI for the address where you want to buy or refinance, you should be able to apply for a HomeReady mortgage. Borrowers in low-income areas may not have to worry about any income limit at all.
However, you'll also need to meet a minimum credit score of 620 and participate in homeownership education courses approved by the program. These aren't particularly difficult hurdles to clear, considering that the minimum credit score for an FHA loan is 580 and most approved courses last between 4 to 6 hours. Still, you should know that you'll need to pay for whichever course you decide on, which will add a little to your final expenses.
Borrower Contribution and Lower Down Payment
Not only do HomeReady mortgages come with lower minimums for down payment, they also let you fund your upfront mortgage costs with more help from other sources. Fannie Mae will allow a loan-to-value ratio (LTV) of up to 97% for a HomeReady loan on single-family units, which translates to down payments of at least 3%. This is actually lower than the minimum down payment for FHA loans, which is usually 3.5% even with a government guarantee to the lender. With HomeReady, you won't have to worry about meeting a minimum for your personal contribution, which means that you can expect to fund your entire mortgage from a gift.
What is a HomeReady Mortgage? is available in the following areas/cities
Browse for additional mortgage experience in other cities with products and services provided by übermortgage.