The HomeReady mortgage is a home loan financed through the Federal National Mortgage Association (Fannie Mae). These loans specifically target low-and moderate-income (LMI) borrowers who can afford mortgage payments but might struggle to fund a sizable down payment.
Another aspect of these mortgage products is that they encourage loans for homes in “designated low-income, minority, and disaster-impacted communities.” Additionally, these loans offer low rates when compared to other programs.
Not being able to afford a down payment is one of the most common barriers to homeownership. This program helps to address this by accepting as little as 3% down. That’s less than an FHA loan down payment of 3.5%.
On top of this, the HomeReady mortgage allows borrowers to accept grants, gifts, and even small loans to cover closing costs or down payments. With income from any member of the household qualifying for the loan, many say this is the most accessible mortgage available on the market.
Who is the HomeReady Mortgage for?
The HomeReady mortgage addresses the most common reasons that interfere with homeownership. The most apparent barrier was 20% down payments. In addition, many young adults struggle to save with the cost of living, high rents, and student loans.
Launched in 2015, HomeReady addresses this by offering more expansive eligibility guidelines. These include allowing first-time and repeat home buyers the opportunity to buy with as little as 3% of the home value.
Another aspect of these loans is “income pooling.” This program allows other occupants in the home to use their income as part of the application, including parents or relatives. These extra income streams could be enough to get a loan approved, making it a very welcome benefit.
Additionally, there is flexibility for co-borrowers. While these loans are only available if the borrower doesn’t own another home, co-borrowers (such as a parent) can join to help their children qualify for the mortgage. However, income limits apply.
Finally, the HomeReady mortgage will also accept additional income sources, such as rental income from a 1-unit property and broader income from those who have lived at the property for 12 months.
What are the Borrower Criteria for a HomeReady Mortgage?
A HomeReady loan is one of the most flexible mortgages on the market. The borrower criteria are reasonably broad and include:
The borrower’s income should be below the area median income (AMI) to qualify for a HomeReady mortgage; however, there are exceptions to this rule based on the property’s location.
A HomeReady loan allows for non-traditional credit, with credit scores as low as 620 permitted.
First-time buyers are welcome to apply to the program; however, they do not receive any special benefits.
Occupancy or Ownership of Other Properties
Only single-unit and owner-occupied primary residences are allowed under the HomeReady mortgage. However, occupants (alongside non-occupant borrowers) can have ownership of another property at the time of closing.
Homes covered under these loans are:
- Single-family homes comprised of one- to four units.
- Planned unit developments.
- Manufactured housing that meets MH Advantage requirements.
Who Qualifies for A HomeReady Loan?
To qualify for a HomeReady loan, borrowers must meet three main criteria:
#1 Credit Score of over 620
HomeReady is available to people with lower incomes; however, they will still require a minimum credit score of 620. More conventional mortgages generally require a higher credit score, so these levels represent an exciting opportunity for many prospective home buyers.
Additionally, buyers can use alternative credit, such as rent and utilities, to meet this threshold in some cases.
#2 Number of Financed Properties
Limits apply to the number of financed properties a borrower may have and qualify for a HomeReady mortgage. Consult your mortgage broker for details if you have financed multiple properties.
#3 Mandatory Homeownership Education Courses
Another interesting feature of the HomeReady mortgage is that it mandates attendance at homeownership courses. These courses prepare borrowers for the financial challenge of owning a home. Available online, they require 4-6 hours of participation.
HomeReady mortgages are an excellent opportunity for those with lower or medium incomes to buy a home. The 3% down payment directly addressed the most commonly cited barrier to homeownership. These mortgage programs also make it easy for parents or relatives to gift or loan money required for a downpayment. Additionally, they are compatible with many deposit assistance programs.
The Interest rates for a HomeReady mortgage are the same as other traditional loans. However, with no premium attached rate, these mortgages are one of the easiest for which to qualify. Borrowers can access a HomeReady adjustable-rate mortgage and lock in a rate for five, seven, or ten years. Current interest rates are at record lows, making these mortgage products very attractive.
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in mortgages for first-time homebuyers, conventional home mortgages, refinance loans, reverse mortgages, and FHA, VA, and USDA mortgage options. We’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.