Fannie Mae HomeReady Program for First-Time Homebuyers
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Are you a first-time homebuyer in florida seeking an affordable mortgage option? Look no further! Fannie Mae's HomeReady Mortgage program offers low down payment requirements, flexible income sources, and generous credit score considerations, making it the ideal choice for borrowers with lower credit scores and low to moderate incomes.
Discover the benefits of this exceptional loan program, the HomeReady Income Limits & Guidelines, and learn how you can qualify by exploring our comprehensive guide.
Key Takeaways:
✅ Understanding Fannie Mae HomeReady Mortgages: The HomeReady program is designed to help first-time homebuyers with low to moderate incomes secure affordable mortgages with low down payment requirements.
✅ Features and Benefits: Offers a down payment as low as 3%, reduced mortgage insurance premiums, and consideration of non-traditional income sources like boarder or accessory unit income.
✅ Generous Eligibility Requirements: Includes a minimum credit score of 620, income limits up to 80% of the Area Median Income (AMI), and flexible sources for down payments, including gifts and grants.
✅ Application Process: Bennett Capital Partners helps buyers through the HomeReady application process with comprehensive guidance and expertise.
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Understanding Fannie Mae HomeReady Mortgages
Fannie Mae HomeReady is a mortgage program designed to help homebuyers with low to moderate incomes purchase homes with a low down payment.
Overview Of The Program
The Fannie Mae HomeReady mortgage program is specifically designed to address the financial challenges faced by first-time homebuyers, offering a more affordable and accessible path to homeownership.
One of the key features of the HomeReady program is that it allows for various unconventional sources of income. For instance, rental payments from an accessory dwelling unit or even non-occupant co-borrowers can be considered for qualifying purposes.
Eligibility Requirements
To qualify for a Fannie Mae HomeReady mortgage, first-time homebuyers must meet various eligibility requirements, including:
✔ Income limits: Homeready income limits vary by the location you can explore the Area Median Income in your area with these resources;
➡️ For Area Median Income Lookup Tool Tips click here.
➡️ You can also download Income Eligibility by County (excel).
✔ Eligibility map: You can check the Homeready eligibility map to determine if the property you are interested in purchasing is located in an eligible area. Fannie Mae Homeready Eligibility map click here
✔ Credit score: The minimum credit score required is 620. It is important to maintain your credit, the higher your FICO score the better chances you have of approval.
✔ Loan to Value: The maximum Loan to Value (LTV) allowed is 97%. The loan-to-value (LTV) ratio is a measure comparing the amount of your mortgage with the appraised value of the property. The higher your down payment, the lower your LTV ratio.
✔ Eligible Property Types: 1-unit principal residence, including fannie mae eligible condos, co-ops, PUDs, manufactured housing, 2- to 4-unit principal residence (no condos, co-ops, or manufactured housing)
✔ Debt-to-income ratio: The maximum debt-to-income (DTI) ratio allowed is 50%.
✔ Completion of homeownership education: At least one borrower must complete a homeownership education course before closing on the loan. Fannie Mae Homeowner education website click here
Keep in mind that lenders may have additional requirements based on an individual applicant, borrower's credit score, financial situation and history when considering them for a Fannie Mae HomeReady mortgage loan program.
Features And Benefits
Fannie Mae HomeReady offers various features and benefits that make it an attractive option for first time homebuyers looking for a mortgage. These include:
✔ Low down payment requirements HomeReady mortgages allow borrowers to put as little as 3% down, making homeownership more accessible for those with limited savings
✔ Low Mortgage Insurance: Reduced MI coverage requirement for loan-to-value ratios above 90% (up to 97%) and cancellable (restrictions apply)
✔ No Minimum Contribution: Flexible sources of funds with no minimum contribution from the borrower’s own funds.
✔ Homeownership education: The program requires at least one borrower to complete a homeownership education course to better understand the home buying process and responsibilities of homeownership.
✔ Faster Appraisal Process: The lender can order the appraisal immediately
Flexible income sources: The program considers a variety of income sources, including accessory dwelling units, rental income, boarder income, and non-occupant co-borrowers' income.
✔ Fixed-rate and adjustable-rate options: Borrowers can choose between fixed-rate or adjustable-rate mortgage terms depending on their financial needs.
✔ Assistance with closing costs: In some cases, borrowers may qualify for assistance programs to help cover closing costs associated with their mortgage.
✔ Non-traditional credit sources: Fannie Mae HomeReady takes into account non-traditional credit sources, such as rent or utility payments, for borrowers with limited credit history.
✔ Credit score flexibility: With a minimum credit score requirement of 620, HomeReady loans are more forgiving than conventional loans that often require higher credit scores.
Benefits Of Fannie Mae HomeReady
Fannie Mae HomeReady offers reduced down payment requirements, flexible income sources, lower mortgage insurance premiums, generous credit score requirements, and consideration of non-traditional credit sources.
Reduced Down Payment Requirements
One of the most significant benefits of Fannie Mae HomeReady is that it offers reduced down payment requirements, making homeownership more accessible for first-time buyers.
With this program, borrowers can put down as little as 3% of the purchase price, compared to the typical 20% down payment loans by some programs.
For example, let's say you're looking to get down payment money to buy a $200,000 home. Under traditional lending guidelines, you would need at least $40,000 in cash just for the down payment - not including closing costs and other fees.
But with Fannie Mae HomeReady's reduced down payment requirement of just 3%, you would only need $6,000 upfront to secure your mortgage loan.
Flexible Income Sources
HomeReady Mortgage offers borrowers flexible income sources to help them qualify for a loan. In addition to traditional income sources, HomeReady allows the consideration of rental income from a 1-unit property with an accessory dwelling unit, boarder income and non-borrower household member’s income.
This means that if you're renting out part of your home or have family members living with you who contribute towards expenses, their incomes can be taken into account when calculating your eligibility for a mortgage.
The ability to consider these non-traditional sources of income can be especially helpful for first-time homebuyers who might struggle to meet strict qualifying requirements under other loan programs.
Lower Mortgage Insurance Premiums
One of the biggest advantages of Fannie Mae HomeReady mortgages is lower mortgage insurance premiums. Typically, borrowers with less than 20% down payment are required to pay for private mortgage insurance (PMI), which can significantly increase monthly payments.
Furthermore, unlike other loan programs that require mortgage insurance for the life of the loan, HomeReady allows borrowers to cancel mortgage insurance on 1-unit properties once their loan balance drops below 80% of their home's appraised value and cancellation criteria are met.
Generous Credit Score Requirements
Are you worried that your credit score might not be high enough to secure a mortgage? Fannie Mae's HomeReady program has got you covered. With a minimum credit score requirement of just 620, HomeReady is more lenient than many other loan programs.
Plus, if your credit score is higher, say around 700, you could enjoy even better interest rates and terms. This can make all the difference for first-time homebuyers who are still building up their credit history and may have limited funds for a large down payment or closing costs.
Consideration Of Non-Traditional Credit Sources
Fannie Mae HomeReady is a program that considers alternative credit sources to determine an applicant's eligibility for a mortgage. This means that if you have limited or no credit scores and no traditional credit references, such as bank loans or credit card payments, Fannie Mae will look at other forms of payment history.
Accessory Unit Income
Consider this scenario: a couple is purchasing a 1-unit property with an accessory unit over the garage. They have a tenant who has already executed a lease agreement to rent the property after purchase. The monthly rent for the accessory unit, as indicated in the lease agreement and supported by the Single-Family Comparable Rent Schedule (Form 1007), is $550. For qualifying purposes, the rental income that can be considered is $412.50 ($550 rent listed in the lease agreement multiplied by 0.75 to account for any vacancy or loss).
Here are the requirements for accessory unit income:
✔ An ADU (accessory dwelling unit) is typically an additional living area independent of the primary dwelling that may have been added to, created within, or detached from a primary one-unit dwelling.
✔ The ADU must provide for living, sleeping, cooking, and bathroom facilities and be on the same parcel as the primary one-unit dwelling.
✔ Income generated from an accessory unit can be considered as rental income under HomeReady in accordance with their standard rental income guidelines. You read the full guidelines on the Fannie Mae Selling Guide website here
✔ In addition to a traditional 1004 appraisal, a Single-Family Comparable Rent Schedule (Form 1007) must be included in the appraisal. Although the form applies to a single-family investment property, Fannie Mae will accept the use of this form with an explanation from the appraiser that the estimated market rent is for the rental of an accessory unit on a 1-unit, principal residence property, and that the information reported on the form is specific to the accessory unit.
✔ If the appraiser is unable to find ADU rentals to use as comparables, the appraiser may use similar non-ADU rental properties and adjust for factors that affect market rent.
Boarder Income
Consider this scenario: a single woman plans to purchase a new home. She has had a roommate sharing living quarters with her for the past 12 months, and the roommate plans to live in the newly purchased home. The roommate pays $375 per month in rent. The borrower has provided documentation to validate the 12 months of prior shared residency, including canceled checks to document the payment of $375 from the roommate for 10 of the most recent 12 months.
The boarder income that can be considered for qualifying purposes is $375 multiplied by 10 months received = $3,750. Because the borrower is unable to document a full 12-month history, this amount is divided over 12 months ($3,750/12 months). The total monthly boarder income that can be considered is $312.50. As long as you meet the income limit set by the income requirements for your property's location it can be used.
Note that sample scenarios are intended for informational purposes only, and depending on other risk factors not shown in this example, the Desktop Underwriter® (DU®) recommendation may differ. Boarder income may be underwritten in DU or manually.
For more information on boarder income, refer to Selling Guide section B5-6-03, HomeReady Mortgage Underwriting Methods, and Requirements. Accessory unit rental income may also be underwritten in DU or manually. For more information on calculating rental income, refer to Selling Guide section B3-3.1-08, Rental Income.
Non-Occupant Borrowers
A non-occupant borrower is anyone, such as a parent, who is willing and financially able to be a borrower on the mortgage, but who will not live in the home.
Sample Scenario: Loan Underwritten in Desktop Underwriter® (DU®)
A married couple is buying their first home, and his father would like to help. He is willing and able to be a borrower on the mortgage loan, but she will not live in the home. Because the borrower’s Father will be an actual borrower on the mortgage loan, his income and liabilities are considered from a qualifying perspective and will be included in the combined debt-to-income (DTI) ratio
NOTE: The maximum LTV is 95% for DU. The DTI ratio is calculated using the income and liabilities of all borrowers; there is no separate DTI ratio requirement for the occupant borrower. Loans with non-occupant borrowers also are eligible for manual underwriting; however, additional requirements apply, including a maximum LTV of 90%, and the occupant borrower must have a DTI ratio no higher than 43%, based solely on their own qualifying income and liabilities. These additional requirements help ensure that loans with non-occupant borrowers maintain a lower risk profile and increase the likelihood of successful homeownership.
Understanding The HomeReady Mortgage
The HomeReady mortgage offers both fixed-rate and adjustable-rate options, with a loan-to-value ratio of up to 97%, while also requiring mortgage insurance premiums that can be lower than those of other conventional loans.
Fixed-Rate And Adjustable-Rate Options
The HomeReady Mortgage program offered by Fannie Mae provides customers with the flexibility to choose between fixed-rate and adjustable-rate mortgages. Here are some key points to consider when deciding which option is best for you:
✔ Fixed-Rate Mortgages: These mortgages offer a stable interest rate that remains the same for the life of your loan, typically 15 or 30 years. This can provide peace of mind knowing that your monthly payments will not change.
✔ Adjustable-Rate Mortgages (ARMs): These mortgages have an interest rate that can fluctuate, based on market conditions after an initial fixed period, usually three, five, or seven years. ARMs often start with a lower interest rate compared to fixed-rate mortgages, making them a great choice if you don't plan on staying in your home for more than a few years.
✔ Hybrid ARMs: These mortgages offer a combination of both fixed and adjustable rates. The initial period is typically fixed (e.g., five years), then the rate adjusts annually based on market conditions.
✔ Interest Rate Caps: With ARMs, there are caps placed on how much your interest rate can increase over time. It's important to understand these caps and whether they fit within your budget for potential increased payments.
No matter which type of mortgage you choose, it's essential to consider all factors such as monthly payments, interest rates, loan term length, and potential hidden costs like private mortgage insurance (PMI). Ultimately picking the best option for you will depend on your financial situation and personal preferences.
Loan-to-Value Ratio
The loan-to-value (LTV) ratio is an essential factor when it comes to the HomeReady mortgage. This ratio compares the home's purchase price or appraised value against the amount of money you want to borrow.
For example, if you plan on buying a house worth $250,000 and need a loan of $200,000, your LTV would be 80%. In other words, you would be borrowing 80% of the home's total cost.
The maximum LTV for HomeReady is 97%, which means with a minimum down payment of as low as 3%, qualified borrowers can obtain this type of mortgage with more flexible requirements than traditional loans.
Mortgage Insurance Requirements
Mortgage insurance is a requirement for most home loans, including the HomeReady Mortgage program. The amount of mortgage insurance you pay depends on your loan-to-value (LTV) ratio and can be reduced if you have a higher credit score or are able to make a larger down payment.
It's important to note that while mortgage insurance may add to your monthly payment, it also provides protection for the lender in case you're unable to repay the loan. As you pay down your mortgage and build equity in your home, you may be eligible to cancel your mortgage insurance which can lead to significant savings over time.
Applying for the HomeReady Program
In summary, the Fannie Mae Home Ready Mortgage is a game-changer for aspiring homeowners. The Fannie Mae Home Ready Program offers advantages that set it apart from traditional FHA loans, including lower down payments and more lenient credit requirements. The FNMA HomeReady initiative also collaborates with various payment assistance programs, providing an extra layer of financial support for qualified buyers.
At Bennett Capital Partners, we can help you apply for the HomeReady program. Our experienced team of mortgage brokers can guide you through the application process and help you determine if you meet the eligibility requirements.
We are expert at first-time homebuyer programs from the Fannie Mae HomeReady program, Fannie Mae HomePath Program, FHA and more. To start the process, you can contact us at 800.457.9057 or by clicking APPLY NOW to begin your application process.
During the application process, you will need to provide documentation of your income, employment, and assets. We will also order a credit report and appraisal of the property. Once your application is approved, you can close on your new home and start enjoying the benefits of homeownership.
To apply to the Fannie Mae HomeReady loan program you can go to our online application here click here.
Conclusion
In conclusion, the Fannie Mae HomeReady program offers an excellent opportunity for first-time homebuyers with low to moderate incomes to purchase their own homes.
FAQs
What are the income eligibility requirements for HomeReady borrowers?
Starting July 20, 2019, the income threshold for all HomeReady loans has been set at 80% of the area median income (AMI) for the location of the property, which includes properties in low-income census tracts.
Do I need to complete a homeownership education course to qualify for the HomeReady program?
Yes, at least one borrower must complete a homeownership education course before closing on the loan.
Can I use gift funds for the down payment and closing costs with the HomeReady program?
Yes, the program allows for flexible sources of funds, including gifts, grants, and Community Seconds®.
What is the maximum debt-to-income ratio allowed for the HomeReady program?
The maximum debt-to-income (DTI) ratio allowed is 50%.
Does Bennett Capital Partners offer the HomeReady program in Miami?
Yes, at Bennett Capital Partners, we offer the HomeReady program to eligible first-time homebuyers in Miami.
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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