What Is a HomeReady Mortgage?

If you're a low-to-moderate-income borrower with decent credit who wants to buy a house, the Fannie Mae-sponsored HomeReady mortgage might be worth looking into. This loan, like Freddie Mac's Home Possible program, requires only a 3% down payment rather than the typical 20%. HomeReady mortgage price is competitive with or better than regular mortgage pricing.

First-time and repeat homebuyers, as well as those looking to refinance an existing mortgage, are eligible to participate in the HomeReady program. Credit scores of 620 or above are required for eligibility, and individuals with scores of 680 or higher may qualify for even better rates. In addition, HomeReady provides low-cost mortgage insurance.

As of July 20, 2019, eligible borrowers have an annual income of 80% or less of the area median income (AMI) for the census tract where the property is located. Property in low-income census tracts falls under this category. Other residential properties may be owned by a borrower under the HomeReady program. Even so, when a HomeReady mortgage is closed, only one of those other properties can be financed.

HomeReady mortgages offer better than or comparable to regular loan pricing, in addition to a modest down payment of only 3%. When the loan-to-value (LTV) ratio is between 90% and 97 per cent, the program also offers lower than regular mortgage insurance coverage requirements, as well as the option to cancel monthly mortgage insurance payments if the LTV ratio falls below 80%. Furthermore, the borrower is not compelled to utilize a minimum amount of own funds for the down payment and closing costs, but may instead use gifts, grants, or Community Seconds mortgages.

The HomeReady mortgage's terms are also very flexible, which is a huge benefit. While all borrowers may be subject to income constraints, a HomeReady mortgage does not have to be in the name of the primary occupants. Even if they don't plan on living in the house, parents and other family members may be co-borrowers. If a family wants to buy a house with a rental unit attached, they can include it in the future rental income to increase their mortgage qualification.

While there are numerous advantages to a HomeReady mortgage, there are a few disadvantages as well. You will be limited in the amount you can borrow if you use HomeReady to purchase a home. This program (through Fannie Mae) makes use of the FHFA's conforming loan limit, which is $647,200 in the contiguous United States as of 2022. The threshold increases to $970,800 if you purchase a home in Hawaii, Alaska, Guam, or the US Virgin Islands. The conforming loan limit presents a dilemma because property prices in some sections of the country, particularly around the coasts, are significantly higher than the FHFA's conforming loan maximum, even for inexpensive homes.

However, in some regions where 115 per cent of the typical house value exceeds the conforming loan limit, the baseline limit will be greater. In these places, the loan cap for one-unit properties in high-cost zones climbs to $970,800. However, if you live on a low-to-moderate income, it may be risky to take out a loan that you may not be able to manage, even if you qualify on paper.

Lenders who engage in HomeReady mortgages can also benefit from the program. Fannie Mae's Desktop Underwriter (DU) system, for example, automatically identifies loans that may be HomeReady-eligible while also providing a credit risk assessment.

For borrowers with credit scores of 680 or above and LTV ratios of more than 80%, lenders can acquire risk-based pricing waivers. In mortgage-backed security (MBS) pools and full loan commitments, HomeReady loans can also be coupled with regular loans.