First Time Home Owner's Guide: Fannie Mae's HomeReady® Mortgage

The HomeReady® mortgage by Fannie Mae is designed to make homeownership more accessible for creditworthy low-income borrowers. This product offers several features and benefits that cater to the needs of first-time homebuyers and those with limited financial resources. Here’s a detailed look at what the HomeReady® mortgage has to offer:

Key Features

1. Low Down Payment
   • The HomeReady® mortgage allows for a down payment as low as 3% of the purchase price, making it easier for borrowers to afford a home.
2. Flexible Funding Sources
   • Borrowers can use various sources for their down payment and closing costs, including gifts, grants from eligible entities, and Community Seconds® loans. There is no minimum personal funds requirement.
3. Income Flexibility
   • The HomeReady® mortgage allows for the inclusion of rental income and boarder income in the loan application. This can help borrowers qualify for a larger loan amount.
4. Reduced Mortgage Insurance
   • Mortgage insurance requirements are reduced for HomeReady® loans with an LTV above 90%. Additionally, the mortgage insurance can be canceled once the borrower’s equity reaches 20%, subject to certain restrictions.
5. Homeownership Education
   • Borrowers are required to complete a homeownership education course from a HUD-approved agency. This course helps borrowers understand the responsibilities of homeownership and can qualify them for additional benefits, such as a $500 LLPA credit.
6. $2,500 Borrower Credit
   • Very low-income borrowers can receive a $2,500 credit to assist with down payment or closing costs. This benefit helps overcome two of the greatest barriers to homeownership.
7. Eligibility
   • The HomeReady® mortgage is available for 1-unit principal residences, including eligible condos, co-ops, PUDs, and manufactured housing. It also supports 2- to 4-unit principal residences, though certain restrictions apply.
8. Innovative Underwriting Flexibilities
   • The HomeReady® mortgage offers innovative underwriting flexibilities that expand access to credit responsibly. This includes the ability to combine standard and HomeReady® loans into MBS pools and whole loan commitments.

80% AMI Income Qualifications

To qualify for the HomeReady® mortgage, your total annual qualifying income must not exceed 80% of the area median income (AMI) for the property’s location. The AMI is determined by the U.S. Department of Housing and Urban Development (HUD) and varies by geographic area. For example, if the AMI in your area is $50,000, your income to qualify should be no more than $40,000. This income limit ensures that the HomeReady® mortgage is targeted towards low- to moderate-income borrowers who need the most assistance in achieving homeownership.

Benefits

• Affordability: With a low down payment and reduced mortgage insurance premiums, the HomeReady® mortgage makes homeownership more affordable for low-income borrowers.
• Flexibility: The ability to use various funding sources and include rental income in the loan application provides borrowers with greater flexibility.
• Support: Homeownership education and borrower credits provide additional support to help borrowers succeed in their homeownership journey.

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Conclusion

The HomeReady® mortgage by Fannie Mae is an excellent option for creditworthy low-income borrowers looking to achieve homeownership. With its low down payment, flexible funding options, and additional support features, HomeReady® makes it easier for borrowers to afford a home and manage their mortgage responsibly.

¹: HomeReady Mortgage - Fannie Mae³: HomeReady Mortgage Product Matrix - Fannie Mae

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