Minimum Credit Score

620

Key Advantages
Fannie Mae 3% Down with Lower PMI Factor Same as Conventional Loan Products
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What is a HomeReady mortgage?

HomeReady allows borrowers to make a down payment as low as three percent, for either a home buying or refinancing transaction. Borrowers are entitled to use a flexible source of funds for both the down payment and closing costs. HomeReady does not require a minimum contribution to come from the borrower’s source of funds

Because HomeReady allows borrowers to make a small down payment, they are required to purchase mortgage insurance, a premium will be added to your monthly payments. HomeReady’s mortgage insurance is affordable and under certain circumstances, can be removed. Generally, to eliminate mortgage insurance, a borrower’s loan-to-value (LTV) ratio must reach a certain percent. However, ratio and restrictions can vary from lender to lender.

What are HomeReady requirements?

HomeReady is available to those who are purchasing or refinancing a single-family home. To qualify, borrowers need to meet income limits and the property location must be marked in a low-income area. Fannie Mae utilizes an income eligibility tool to look up the qualified income requirement based on the home’s address.

Borrowers that decide to use HomeReady are required to complete an educational course that helps them prepare for the responsibility that comes with buying a home. It is required by Fannie Mae, so borrowers know what to expect as a future homeowner. This gives lenders reassurance borrowers are informed and knowledgeable of how the process works.

HomeReady requires at least one person from the purchase transaction to complete the online educational program. The program is offered in English or Spanish and is continuously receiving good reviews from users. HomeReady’s educational program is designed to help future homebuyers navigate through the mortgage process with a clear understanding and confidence.

HomeReady also requires borrowers to receive housing counseling from the Housing Urban Development (HUD) agency. The agency must be a HUD-approved nonprofit housing counseling organization. This requirement is intended to further educate borrowers and prepare them for homeownership. The education provided within this program illustrates the importance of wisely managing your money so mortgage payments, in addition to other home-related costs, are taken care of promptly.

What are HomeReady income limits?

To be eligible for a HomeReady loan, Fannie Mae requires lenders to look up the area and property address to make sure it meets HomeReady income eligibility requirements. The income limit varies in each area. HomeReady borrowers are not allowed to exceed the income limit for that area.

To find the HomeReady income limits for a specific area, Fannie Mae created a HomeReady Income Eligibility Lookup tool that provides lenders and other housing professionals the ability to research the accurate allowed limit.

When borrowers or professionals look up the property, a map will be displayed that shows the income limit for that specific area and address. The map data will also include the following:

  • HomeReady area median income (AMI)
  • Eligibility status (either 100% of AMI or no income limit for low-income census tracts
  • The city, county, and state; and
  • The Federal Information Processing Standards (FIPS) code, which is a unique code assigned to all geographical areas

What is a HomeReady matrix?

HomeReady is a special loan program that is designed to help low to moderate creditworthy borrowers. Borrowers can become eligible depending on the property’s address, area, and income limit amount. Fannie Mae has created a product matrix that clearly illustrates the program’s eligibility requirements, property type, income limit, mortgage insurance coverage, and more. Below is Fannie Mae’s official PDF that covers everything you need to know: here

What are HomeReady seller concessions?

Seller concessions are a formal agreement between a buyer and seller that states the seller has agreed to pay part or all the buyer’s closing costs.

Others refer to seller concessions either as Interested Party Contributions (IPC), Seller Contributions, or a Seller Assist. Whichever term your lender uses, they all mean the same thing – a buyer’s closing costs being paid by the seller or third-party company.

HomeReady does not require borrowers to bring any additional funds to closing. This mortgage program allows borrowers to use gift money or receive funds from a third-party company to cover the down payment. It also allows borrowers to settle an agreement between the seller, known as a seller concession, to pay for the buyer’s closing costs during the time of the transaction.

What is the difference between HomeReady and HomePossible?

First off, HomeReady is offered by Fannie Mae and HomePossible is offered by Freddie Mac. They are both similar programs and allow borrowers to finance a mortgage without making a large down payment. However, some differences between the two could affect your mortgage experience.

For example, a borrower’s contribution toward the transaction differs between the two programs. HomeReady requires borrowers to contribute a minimum of three percent of the purchase price when buying a multifamily property. HomePossible requires no minimum contribution when purchasing a one to four-unit house.

Both programs require borrowers to purchase the home as the primary residence; not a vacation or rental house.

The household income also differs between the two programs. HomeReady considers non-borrower income as a contributing factor. This additional source of income could help potential applicants get approved.

HomePossible does not consider non-borrower income. This means the resident’s income who is obligated by the loan is the only source that matters.

Finally, both programs require borrowers to complete an educational course that prepares applicants for homeownership. The agency must be approved by your chosen provider. There are some exemptions to opt-out of the educational program, but you will need to talk to your lender.

What is the difference between HomeReady and FHA?

From a glance, both HomeReady and FHA mortgage loans are designed to help borrowers who have financial challenges, such as being unable to put 20 percent down or having limited income. Both programs make the reality of buying a home achievable by offering affordable financing and appealing benefits. However, there are certain distinctions between the two, and one can benefit borrowers more than the other.

For example, a borrower’s credit score will affect what kind of loan they are eligible for. An FHA loan requires borrowers to have a minimum credit score of 580 to put down 3.5%, or as low as 500 if their down payment is 10%. On the other hand, with a HomeReady mortgage, a borrower’s minimum credit score must be 620 and factors in their financial history and details of their desired loan.

Future homebuyers also tend to finance an FHA or HomeReady mortgage because it allows borrowers to make a down payment less than the standard 20 percent. With an FHA loan, borrowers can make a down payment as little as 3.5% if their credit score is greater than 580, or up to 10% if their credit score is between 500 and 579. With a HomeReady loan, borrowers can make a down payment as little as 3% of the property’s purchase price.

A borrower’s debt-to-income (DTI) ratio is calculated and factored into their eligibility for getting approved. A borrower’s DTI is the number they would get when they divide all their monthly debts by their gross monthly income. Generally, you will have more programs available to you with a low DTI ratio.

With an FHA loan, the DTI limit is 43%. However, under some circumstances, some lenders may allow a DTI of up to 50%. With a HomeReady loan, the DTI limit is up to 50%. This option offers extreme flexibility and makes it easier for low-income families to purchase a home.

Lastly, both FHA and HomeReady mortgages are available to both first-time and repeating homebuyers for their primary residence. However, there is an income limit with a HomeReady loan. The income limit depends on the location and area of your property. To be eligible for a HomeReady loan, borrowers must purchase a home within a neighborhood that has no income limit or has an income below the median of that specific neighborhood. On the other hand, borrowers financing an FHA loan have no income limits to be considered eligible.

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Neighborhood Loans was great to work with or getting a home mortgage. This team was really quick to respond to any questions that came up, were constantly looking for better rates and on top of all issues that arose. Getting a mortgage is a lot of work. If you are looking for a mortgage broker for purchasing a home, I recommend Neighborhood Loans. They will make the process smooth and look out for your best interests. - Laurel M.

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They helped me out with a 203K loan on my first property. Explained the steps of the process to me before and throughout, as well as being there through text, call, or email whenever needed. Definitely would recommend Neighborhood Loans if you're looking to purchase a home. My family definitely is happy with the new place. Thanks again! - Marcin C.

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