In an effort to meet the diverse needs of today’s U.S. home buyers, in December 2015 Fannie Mae released the HomeReady mortgage program. This is great news for creditworthy home buyers with low-to-moderate income.
The HomeReady mortgage is essentially an extension, or perhaps even a replacement, of Fannie Mae’s MyCommunityMortgage (MCM) program. MyCommunityMortgage will be retired and no longer available in 2016.
Since 2001, MCM has been a successful mortgage loan program for Fannie Mae. Over time, much of the underwriting eligibility and flexibilities associated with MCM have transitioned into standard policy for Fannie Mae.
By developing a new loan program specifically targeted to low and moderate income borrowers, Fannie Mae acknowledged the continuing need to provide more access to credit, and credit worthy borrowers.
HomeReady will be available to borrowers at any income level for properties in designated low-income census tracts, and to borrowers at or below 100% of area median income (AMI) for properties in high-minority census tracts or designated disaster areas.
For properties in remaining census tracts, HomeReady borrowers must have an income at below 80% of AMI.
BENEFITS FOR HOME BUYERS
There are a number of benefits for borrowers using the HomeReady mortgage program.
A down payment of just 3% is necessary for home buyers using the HomeReady program. This is not limited to just first time buyers.
A reduced down payment can be significant for potential buyers in an economy that is still working towards full recovery.
For some buyers, a 3% down payment can be the difference in being able to buy a home.
Unlike many loan programs, there is no minimum investment required from the home buyer. Gifts and grants can be used for down payment, as well as closing costs. This is another significant benefit for borrower that have minimal funds available for down payment and/or closing costs.
For the first time, income can be used from a non-household member borrower. This will be especially beneficial for multi-generational and extended households.
Additional features of the HomeReady program include allowing non-occupant borrowers, such as parents, and rental payments, i.e. basement apartment rent, to supplement the borrower’s qualifying income.
HomeReady offers homeownership education that can help home buyers prepare for the responsibilities of homeownership.
BENEFITS FOR LENDERS
Home buyers aren’t the only ones that will benefit from Fannie Mae’s new HomeReady mortgage. Having an additional loan program available that allows for minimal down payment provides an additional tool for lenders.
The HomeReady mortgage is a standard loan product offering and is available to all Fannie Mae lenders. No specific approvals are required.
While still obtainable, down payment assistance programs aren’t as readily available as they once were. As such, over recent years, there’s been a need for additional low down payment programs.
USDA and VA loans can be great loans for folks with little to no down payment. However, there are number of restrictions to these types of loans, meaning not all borrowers will qualify for these programs.
Non-borrower, extended-family household income can be used as a compensating factor, allowing a debt-to-income ratio greater than 45%, up to 50%.
Another great benefit that comes with the HomeReady program is reduced mortgage insurance. Typically, the lower the down payment, the higher the mortgage insurance. With HomeReady, Fannie Mae has instituted lower than standard mortgage insurance coverage, yet another advantage that the lender has to offer the home buyer.
Lenders are always looking for different loan programs to offer their clients and their real estate partners, separating themselves from their counterparts. The ability to introduce a new loan program with extra flexibility is always a welcome addition to lenders.
THE HOMEREADY MORTGAGE PROGRAM
The HomeReady mortgage program was designed to help more U.S. households get approved for low-down payment loans, offering home buyers and lenders flexibility and expanded eligibility for financing homes. Homebuyers can use income from relatives and non-relatives for purchase and refinance home loans.