HomeReady™: Low Income, Low Down Payment, No Problem
For aspiring home buyers who have decent credit and low- to moderate-income, it is possible to get a conventional (non-government) mortgage with just three percent down. It’s called the HomeReady™ home loan, replacing Fanie Mae’s MyCommunityMortgage program in December 2015 by Fannie Mae.
The loan offers some great features:
- Recognizing non-borrower household income – if needed – to help applicants qualify.
- Borrowers don’t have to be first-time homebuyers (unlike Fannie Mae’s standard Conventional 97).
- Rental and boarder income may be considered for qualifying.
- Guidelines are flexible about sources of funds, with no minimum borrower contribution.
- Competitive pricing meets or beats standard loan costs.
“Fannie Mae wanted to have a program that reflected how people actually live,” says Tony Mariotti, founder of RubyOne Mortgage in Los Angeles.
“It’s a nod to the fact that more people are living in the home, and there is a changing landscape in America compared to the 1950s with a nuclear family.”
The loan can help all types of families, including those who have three generations living under one roof.
So what kind of borrowers is this loan helping? Here’s a glimpse into some of the Americans who are living the dream after being approved for the HomeReady™ home loan:
HomeReady™ After Bankruptcy
Josh Lewis, senior advisor and sales manager at BuyWise Mortgage in Long Beach, California, recently had a great success using HomeReady™ for one of his borrowers.
The couple went through bankruptcy just over four years ago, and that included a mortgage which subsequently went to foreclosure in late 2015.
“But they were eligible for a Fannie Mae financing based off of the bankruptcy timeline despite the foreclosure. Due to the negative credit items, their credit scores were just over 620, which enabled them to get desktop underwriter (DU) approval with three percent,” he said.
DU is an automated program used by loan originators to underwrite applicants for Fannie Mae mortgages.
Less Mortgage Insurance
Thanks to the reduced mortgage insurance requirements, and the caps on risk-based pricing adjustments with HomeReady™, Lewis was able to get them a 3.625 percent interest rate with a lender credit for closing costs.
“Without HomeReady™, they would have been well over four percent with much higher mortgage insurance, increasing their payment over $150 per month,” he states.
“Needless to say, the clients were ecstatic with the program. In fact, when I presented them the options with and without HomeReady™, they chose to only look at homes in no-income census tracts since they made slightly too much to qualify for HomeReady™ in their area.”
Gift From Grandpa Gets Them A House
With only a $35,000 yearly income, an associate pastor and his family in Utah were having a hard time saving for any kind of down payment.
A HomeReady™ loan requires just three percent down, and that three percent can be gifted from a friend, relative, employer or charitable organization. It can even be borrowed in some cases.
“With a HomeReady™ loan, he got the down payment from his grandpa in Pennsylvania,” said Erik Swensen, vice president of Beam Lending in Logan, Utah.
“The couple had saved some money and was ready to put down some of their own money, but they had expenses come up at the last minute. They ended up relying solely on the grandpa,” Swensen said.
The couple bought a $160,000, 3-bedroom, 2 bath rambler house.
“Things did come up in the underwriting, but we got it done. That’s what is important, and we got them the best program out there for them,” Swensen said.
“The HomeReady™ loan is a fantastic one for the lower to middle-income families who are making every dollar count.”
Ability To Buy On Fixed Income
Then there was this would-be home buyer in the suburbs of Chicago lives on disability payments. He had no way of improving his income situation to buy a home.
But by including the income of his live-in nephew who helps him out, he was able to get a HomeReady™ Home Loan.
“I can’t think of any other loans that allow for non-borrower’s income to be included,” Tony Mariotti says. “This guy is now purchasing a three-bedroom home about 30 miles out of town.”
Another obstacle with some first-timer programs was the fact that the applicant already owned a condo, which he was renting out.
HomeReady™ doesn’t require you to be a first-time homebuyer, Mariotti says. “When you start stacking the variables up on this loan, this one just happened to be aligned for this borrower.”
He sees this loan helping many types of households, including families with several generations or those whose adult children have come home to live after college or a divorce. By using a non-borrower’s income, the loan can be approved when it couldn’t without that extra boost.
What Are Today’s HomeReady™ Mortgage Rates?
Rates for this program can be lower than those of other programs, especially if you have factors that increase the risk to the lender — like lower credit scores and smaller down payments. Check with a lender today and see what’s available to you.