I started to get curious about Fannie Mae’s HomeReady mortgage program when pricing out loan scenarios that could lean towards either conforming or FHA. I needed to get a sense of which would provide the better fit for the client. In so doing, this HomeReady program, about which I knew relatively little, kept splitting the difference. The age-old question loomed: Is the scenario a better fit for FHA with its lower interest rates, but higher and permanent mortgage insurance premiums, or is it a better match for conforming, with its higher rates but lower PMI rates that can be removed at a date in the future? Often a buyer’s profile would make the decision for us based on qualifying parameters, but what about those that did not? Enter the Home Ready program.
The FNMA HomeReady program is intended to serve low- to moderate-income creditworthy borrowers. It can permit a 3% down payment, has lenient debt-to-income (DTI) ratios, allows a FICO score down to 620 and at the higher loan-to-values (LTVs), like 10% down through 3% down, the PMI requirement is less, making the premiums cheaper for the client. However, one of the defining characteristics of HomeReady is that the borrowers must have an income level BELOW a specified amount, which is determined by the geographical location of the subject property. This is counter intuitive, right? After all, we’ve been conditioned that we need to meet the debt-to-income (DTI) requirement to even qualify for any loan, and now HomeReady tells us our income cannot be too high!
But then we remember that this is the convoluted world of home financing, and we can take solace in the fact that there are many areas, even here in California, that do not have any income restriction. You can put in your target property address by clicking HERE for the HomeReady lookup website. If you determine that your income is below the level for your area, or you’re in an under served area with no restriction, you may be eligible for HomeReady and these are the positive attributes it may bestow:
- Better interest rates.
- Cheaper mortgage insurance.
- Non-occupant co-borrowers are permitted (co-signers).
- The ability to use income from an accessory dwelling unit (ADU), aka “granny unit” or “mother-in-law.”
Remember too, HomeReady doesn’t have to be black and white when it comes to qualification. Let’s say we’ve got a married couple and their income exceeds the requirement. But let’s also say that we cannot qualify one of the borrowers — maybe one of them is too new on the job or maybe a FICO score doesn’t fit. If we remove that borrower from the application and we still qualify on DTI, perhaps now we are under the income threshold and have a totally viable HomeReady qualification.
Any questions about Home Ready? Load up your cannons and FIRE! We’re here to help with this very strong program that offers borrowers some of the best of both conforming and FHA options.
Back in black,
Vice President of Mortgage Lending
Cell/Text: 415-367-5959 Fax: 415-366-1590
Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709
*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate’s Human Resources Department.
Guaranteed Rate. Illinois Residential Mortgage Licensee NMLS License #2611 3940 N. Ravenswood Chicago, IL 60613 – (866) 934-7283