The Fannie Mae HomeReady® mortgage program offers low to moderate-income borrowers HomeReady Income Limits & Guidelines an opportunity to purchase a home with as little as 3% down payment. This guide will cover the key features and benefits of the program, as well as eligibility requirements and how to apply.
Key Takeaways
✅ Low Down Payment Requirements: The Fannie Mae HomeReady® mortgage program enables eligible low to moderate-income borrowers to purchase a home with a down payment as low as 3%.
✅ Flexible Income Sources: Borrowers can include additional income sources like co-borrowers not living on the property, rental income, and non-borrower household members to qualify.
✅ Homeownership Education Course: Completing an online homeownership education course is required, providing valuable guidance for first-time homebuyers.
✅ Comparison with FHA Loans: HomeReady® mortgages offer competitive benefits like lower down payment requirements, flexible underwriting, and no upfront mortgage insurance premium compared to FHA loans.
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Ideal Borrowers
The HomeReady® mortgage is designed for borrowers who:
✔ Have low to moderate income
✔ Are first-time or repeat homebuyers
✔ Are looking to purchase a home for their multi-generational family
✔ Have limited cash for a down payment
✔ Have a credit score ≥ 620
✔ Have a higher debt-to-income (DTI) ratio (no more than 50%)
✔ Have (or are interested in having) supplemental rental income
Income Limits
The Fannie Mae HomeReady® mortgage program aims to serve the needs of low to moderate-income borrowers who aspire to become homeowners. One of the critical aspects of this program is the income limits established for eligibility. These limits ensure that the HomeReady® mortgage remains accessible to those who need it most while maintaining a balance between risk factors associated with lending. In this section, we will delve into the income limits for the HomeReady® program, the diverse sources of qualifying income, and how these elements work together to help more borrowers achieve their homeownership dreams.
Income Limits and Qualifying Income Sources
Income Limits
Income limits for the HomeReady® mortgage depend on the location of the property. In low-income areas, there are no income limits, making it easier for borrowers in these areas to qualify. In other areas, borrowers cannot make more than 100% of the area's average median income. This ensures that the program remains accessible to those who need it most.
Qualifying Income Sources
A wide range of income sources can be used to qualify for the HomeReady® mortgage, including standard salary, overtime pay, disability pay, commissions, and Social Security, among others. This flexibility makes it easier for borrowers with various income streams to qualify for the program.
Income Eligibility Tool
To find out if your desired property qualifies for a Fannie Mae HomeReady® mortgage, use the income eligibility tool. This resource will help you determine whether your income and the property's location meet the program's requirements.
For additional information on the Fannie Mae HomeReady® mortgage program and income limits, you can also consult the following external resources:
Fannie Mae HomeReady® Program Fact Sheet - This fact sheet provides an overview of the program's features and benefits.
Fannie Mae HomeReady® Mortgage FAQs - A comprehensive list of frequently asked questions about the HomeReady® mortgage program.
By familiarizing yourself with the income limits, qualifying income sources, and available resources, you can make a more informed decision about whether the Fannie Mae HomeReady® mortgage program is right for you.
Additional Qualifying Income Sources
Explore the innovative Fannie Mae HomeReady® mortgage program, designed to cater to the needs of low to moderate-income homebuyers by providing a flexible and affordable path to homeownership. In this comprehensive guide, we'll dive into the unique features and benefits of the HomeReady® mortgage, with a special focus on the additional qualifying income sources that set this program apart from others. By understanding how to leverage these income sources, such as co-borrowers you don't live with, non-borrowers you live with, and rental income, you'll be better equipped to make informed decisions about your home financing options.
Additional Qualifying Income Sources
Co-borrowers You Don't Live With
A standout feature of the HomeReady® mortgage is the ability to use income from relatives and non-relatives for purchase and refinance home loans, even if they don't reside on the property. This allows, for example, parents to help their children qualify for a mortgage by being co-borrowers on the loan. Income limits may apply.
Non-borrowers You Live With
Income from non-borrowers (household members not on the mortgage) can also be considered during the qualification process. This is advantageous for multi-generational families, aging or retired parents living with children, and unmarried couples where only one person wants to be on the loan. While their incomes won't be added to yours in the approval process, they can help secure approval in situations with a higher DTI ratio.
Rental Income
Roommates and boarders who have lived with you for at least one year can also contribute rental income to help qualify for the mortgage. If your new home has any detached living units, like a basement apartment or mother-in-law unit, you can propose to find a tenant and add the estimated rent as part of your income in the application. Unlike roommate income, you do not need a 12-month history of shared residency.
Down Payment and Closing Costs
Enhance your understanding of the flexible options available for down payment and closing costs with the Fannie Mae HomeReady® mortgage program. By offering multiple funding sources and accommodating solutions like Community Seconds®, HomeReady® is designed to make homeownership more accessible for low to moderate-income borrowers. In this section, we'll discuss the various sources that can be utilized for down payment and closing costs, as well as the advantages of the Community Seconds® initiative.
Down Payment and Closing Costs
Multiple Funding Sources
With HomeReady®, cash for down payment and closing costs can come from a variety of sources, such as gifts, grants, and Community Seconds®. This flexibility eliminates the need for minimum personal funds, making it easier for borrowers to secure financing for their dream home.
Community Seconds
Community Seconds® mortgages enable Fannie Mae lenders to leverage public, nonprofit, and employer funds to finance down payment and/or closing costs, ultimately helping more families achieve homeownership. This innovative approach removes some of the financial barriers often faced by first-time homebuyers and low to moderate-income families.
Additional Financing Options
Gifts from Family Members
HomeReady® allows borrowers to use gifts from family members to cover part or all of the down payment and closing costs. This enables borrowers to receive financial assistance from relatives, making homeownership more attainable.
Loans Against Retirement Accounts
In some cases, borrowers may be eligible to use loans against their retirement accounts, such as 401(k) plans, to help cover down payment and closing costs. This option should be carefully considered, as it may impact your long-term financial goals.
Seller Concessions
Seller concessions refer to instances where the seller agrees to contribute towards the buyer's closing costs, either by offering a credit or paying certain fees directly. HomeReady® allows for seller concessions, which can help reduce the amount of cash a borrower needs to close on a home.
Rate Buydowns
Rate buydowns, such as the 3-2-1 buydown or other temporary buydown options, allow borrowers to temporarily reduce their mortgage interest rate, resulting in lower initial monthly payments. This can provide borrowers with extra breathing room during the early years of homeownership. HomeReady® permits rate buydowns, making it even more adaptable to borrowers' financial situations.
Mortgage Insurance
With HomeReady®, there is no upfront premium for mortgage insurance. When your Loan-to-Value (LTV) ratio reaches 80%, you can request to have your mortgage insurance canceled. It will automatically be canceled when your LTV drops below 78%.
FHA vs. HomeReady®
HomeReady® was created to provide buyers with an alternative to FHA loans. The following comparison chart highlights key program features and differences. Keep in mind that credit score requirements may vary by lender.
Benefits:
✔ Lower down payment requirement: HomeReady® requires a minimum down payment of only 3% compared to FHA's 3.5%.
✔ Flexible income sources: HomeReady® allows borrowers to use income from co-borrowers they don't live with and non-borrowers they live with, as well as rental income.
✔ No upfront mortgage insurance premium: HomeReady® has no upfront premium for mortgage insurance and the option to cancel monthly premiums when certain conditions are met.
✔ Income-based eligibility: HomeReady® caters specifically to low- to moderate-income borrowers, with income limits based on the property location.
✔ Homeownership education: HomeReady® requires borrowers to complete an online homeownership education course, which can be beneficial for first-time homebuyers.
Drawbacks:
✔ Higher credit score requirement: HomeReady® has a higher minimum credit score requirement of 620 compared to FHA's 580.
✔ Income limits: HomeReady® has income limits based on the property location, which may disqualify some borrowers with higher incomes.
Benefits:
✔ Lower credit score requirement: FHA loans have a lower minimum credit score requirement of 580 compared to HomeReady®'s 620.
✔ No income limits: FHA loans do not have income limits, making them accessible to borrowers with higher incomes.
✔ Government-backed: FHA loans are backed by the government, which can make them more accessible to first-time homebuyers and those with less-than-perfect credit.
Drawbacks:
✔ Higher down payment requirement: FHA loans require a minimum down payment of 3.5% compared to HomeReady®'s 3%.
✔ Upfront and monthly mortgage insurance premiums: FHA loans require both an upfront and monthly mortgage insurance premium, which can add to the overall cost of the loan.
✔ Less flexibility with income sources: FHA loans do not have the same level of flexibility with income sources, such as co-borrowers you don't live with, non-borrowers you live with, and rental income.
✔ No homeownership education requirement: While this may be seen as a benefit by some, the lack of a homeownership education requirement for FHA loans means that first-time homebuyers may not receive the same level of guidance and support as they would with a HomeReady® mortgage.
Homeownership Education
Framework® Course
f you choose to move forward with a Fannie Mae HomeReady® mortgage, you will be required to complete an online homeownership education course. Framework® is a popular online class that prepares borrowers for sustainable homeownership. Other education and housing counseling options are available. The class takes 4 to 6 hours to complete and requires a one-time $75 fee (covering both you and a co-borrower).
NOTE: Completion of the Framework course does not, by itself, qualify a homebuyer for a HomeReady® mortgage. Additional eligibility terms and conditions apply.
What You'll Learn
The homeownership education course covers topics such as:
✔ How much home you can afford
✔ How to improve your credit
✔ How to shop for the best loan
✔ The steps of the mortgage process
✔ What to include in your offer
✔ Home inspection basics
✔ The steps of the closing process
✔ And more
How to Qualify
While Fannie Mae designs and sets the rules for HomeReady® mortgages, the loans themselves are provided through national and local mortgage lenders. To ensure the best possible experience, it's important to speak with a specialist who can guide you through the qualification process.
At Bennett Capital Partners, our team of experts is here to help you navigate the HomeReady® mortgage program. To get started, call us at 1-800-457-9057 or 1-305-407-0747. You can also reach out through our online resources, such as the Pre-Approval Request form.
Don't hesitate to contact us with any questions or concerns you may have. Our specialists are committed to providing the personalized support you need to make your homeownership dreams a reality.
Conclusion
The Fannie Mae HomeReady® mortgage program offers a unique opportunity for low to moderate-income borrowers to achieve homeownership with flexible income qualifications and a low down payment requirement. By understanding the program guidelines and requirements, you can determine if HomeReady® is the right mortgage option for you.
As specialists in this program, Bennett Capital Partners is here to help guide you through the process and answer any questions you may have. We offer a wealth of resources and tools, such as our Quick Quote, Pre-Approval Request, Today's Rates, Mortgage Calculator, and Economic Calendar.
We encourage you to Apply Now to get started on your HomeReady® mortgage journey. And don't forget to Subscribe to our Newsletter for valuable insights and updates on the mortgage industry.
With Bennett Capital Partners by your side, you can confidently navigate the HomeReady® mortgage process and move one step closer to homeownership.
Additional Information on HomeReady Mortgages
When considering a HomeReady mortgage, it's important to be aware of various factors that can influence your eligibility and the loan terms. Here are some key terms and concepts you should know:
✔ Fannie Mae Home Ready Income Limits: These are the income restrictions set by Fannie Mae to qualify for a HomeReady mortgage.
✔ Fannie Mae HomePath Income Limits: Similar to the HomeReady income limits, these are set for properties available through Fannie Mae's HomePath program.
✔ FNMA Home Ready Income Limits: FNMA stands for Federal National Mortgage Association, which is another name for Fannie Mae. The income limits for their HomeReady program are crucial for eligibility.
✔ Home Ready Income: This refers to the income you must have to qualify for this specific type of loan.
✔ Home Ready Income Limits: These are the maximum income levels allowed to qualify for a HomeReady mortgage.
✔ Private Mortgage Insurance: This is insurance that you may have to purchase if your down payment is less than 20%.
✔ Income Limit: This is the maximum income you can have to qualify for certain types of loans.
✔ Payment Assistance Programs: These are programs that assist with the down payment or closing costs.
✔ Payment Loans: These are loans that can be used for down payments.
✔ Down Payments: This is the initial upfront portion of the total amount of the home's purchase price.
✔ Lower Mortgage Insurance Costs: HomeReady mortgages often come with the benefit of reduced costs for mortgage insurance.
By understanding these terms, you can better navigate the HomeReady mortgage landscape and find the best financing options for your needs.
FAQ's
Who are the ideal borrowers for the HomeReady® mortgage program?
The HomeReady® mortgage program is designed for low to moderate-income borrowers, first-time homebuyers, and those looking to purchase a home in designated areas. Ideal borrowers have a stable source of income, a credit score of at least 620, and are able to make a down payment of at least 3%.
What are the income limits for the HomeReady® mortgage program?
The income limits for the HomeReady® program vary depending on the area in which the property is located. In general, borrowers' total household income must not exceed 80% of the Area Median Income (AMI) for the property's location. However, there are no income limits for properties located in low-income census tracts.
Can I use additional sources of income to qualify for a HomeReady® mortgage?
Yes, the HomeReady® program allows for the inclusion of non-borrower household members' income, rental income from an accessory dwelling unit, and boarder income as additional qualifying income sources. This can help borrowers meet the income requirements and afford a larger loan amount.
What are the down payment and closing cost requirements for a HomeReady® mortgage?
HomeReady® mortgages require a minimum down payment of 3% of the home's purchase price. The program also allows for the use of gift funds, grants, and Community Seconds® for down payment assistance and closing costs, making it easier for borrowers to afford the upfront expenses associated with homeownership.
How does the HomeReady® mortgage program compare to FHA loans?
The HomeReady® mortgage program and FHA loans both cater to low to moderate-income borrowers and first-time homebuyers. However, HomeReady® mortgages typically require a lower down payment (3% vs. 3.5% for FHA loans) and have lower mortgage insurance premiums. Additionally, the HomeReady® program has more flexible underwriting guidelines, such as allowing the use of additional income sources and offering lower interest rates for borrowers who complete homeownership education.
Philip Bennett
Philip is the owner and Licensed Mortgage Broker at Bennett Capital Partners. He earned his degree in Accounting and Finance from Binghamton University and holds a Master's Degree in Finance from NOVA Southeastern University. With more than 20 years of experience, Philip has been a leader in the mortgage industry. He has personally originated over $2 billion in residential and commercial mortgages.
Learn more about Philip Bennett's background and experience on our Founder's page. Whether you're a first-time homebuyer or a seasoned real estate investor, our team is here to help you achieve your real estate goals. Don't wait any longer, contact us today and let us help you find the right mortgage for your needs.
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