Wanting to buy a home and being in a position to do so are two different things. When you’re bringing home a smaller paycheck, home ownership can seem like an impossible dream but Fannie Mae is helping to change that. The recently launched HomeReady Program is aimed at helping low income buyers get the financing they need. Here’s a quick rundown of how the program works.
What is HomeReady?
The HomeReady Program is an initiative from Fannie Mae, a leading source of mortgage financing in the U.S. This program is designed for credit-worthy low and moderate income buyers who want to buy homes in designated low income, minority or disaster-impacted communities. In that way, it’s similar to the USDA loan program, which is meant to help lower income buyers who are shopping around in rural areas.
What are the benefits for buyers?
Compared to a conventional loan or even FHA financing, the HomeReady Program offers some unique benefits that are geared towards buyers who aren’t making a ton of cash. For example, qualified buyers can take advantage of competitive pricing, which means you’re not going to be stuck with a higher interest rate on your mortgage just for using the program.
This program also allows buyers to use cash gifts for down payment funds and the down payment requirement is capped at 3%. That’s less than the 3.5% required by FHA loans and the 20% down that’s recommended for a conventional loan. Loans issued through the HomeReady Program require mortgage insurance but you can get it cancelled once your loan-to-value ratio drops below 78%.
Best of all, the HomeReady Program offers some flexibility where credit scores are concerned. If your credit history is nonexistent, you could still qualify for a loan based on non-traditional financial history, such as a record of making rent or utility payments on time.
The HomeReady Program is open to first-time and repeat buyers but there are some specific guidelines you’ll have to meet in order to get a loan. In terms of credit, the minimum score needed is 620, unless you have no credit history in which case Fannie Mae would use other means to assess your creditworthiness.
Aside from that, the home you want to buy has to be in a designated area that’s approved by the program. You can use the HomeReady address lookup tool to determine whether the house you have your eye on fits the bill.
Lastly and most importantly, you have to be income eligible to get a mortgage through the program. In general, your income has to be equal to 80% of the area median income in the census tract where you’re buying a home. In some areas, however, the limit increases to 100% or Fannie Mae imposes no limit at all. These are areas where the majority of residents are either low income or belong to a minority group.
Keep in mind that for purposes of this program, Fannie Mae takes into account the income of all the people living in your household, regardless of whether they’re name is going to be listed on the mortgage. That’s something to be aware of since it could affect your eligibility.
Before you apply
Before you apply for a HomeReady loan or any other mortgage, there are a few things you need to do first, starting with checking your credit. If you’re clueless about where your credit’s at, take our quick 2-minute assessment to see where you stand.
Calculate how much of a loan you can afford based on your income and any other debt payments you’re making. Work on paying down your debt, which can reduce your monthly outflow and improve your credit in the process. Finally, focus on setting some money aside in savings to cover your down payment and closing costs.