Buying your first home can be overwhelming and daunting. Between the deposits, interest rates, and fees, the initial cost can be prohibitive for anyone in the low or moderate-income bracket. Working with Fannie Mae to get a HomeReady mortgage loan can help anyone buy or refinance their home in no time.
Definition
A HomeReady Mortgage Loan is a traditional home loan through Fannie Mae. These loans are designed with low to moderate-income borrowers in mind. Without the prohibitive rules that go along with traditional home loans, Home Ready loans allow other people to contribute to the overall cost of the home.
Home Ready loans reduce the down payment and offer loosened mortgage requirements. Typically, mortgage insurance has very strict requirements about payments and who is authorized to pay. A HomeReady loan offers many looser requirements allowing buying a home to be more of a collaboration than through traditional means.
Benefits
There is a wide range of benefits with a HomeReady loan beyond lower initial down payments. Understanding what each of these benefits means to borrowers is a great first step toward buying your first home.
Lower down payment and borrower contribution
With every mortgage, down payments are key. With a larger down payment, monthly mortgage payments can be lower but with a HomeReady loan Fannie Mae offers up to 97% on a loan-to-value ratio which translates to only a 3% down payment for a home.
HomeReady loans also offer borrower contribution. While strict traditional home loans only allow for one person to pay on the mortgage, HomeReady loans allow others living in the house to pay down the monthly payments. This allows for greater flexibility in payment size and schedule.
Flexible approval process
These types of loans often have several family members contributing to the cost of the mortgage. While traditional loans only take into consideration, the borrower’s income, HomeReady loans take into account the co-borrowers income as well. With multiple incomes weighing on the decision many HomeReady loans are quickly approved.
In addition to people living under the same roof, other co-borrowers like parents or older relatives can add their income into consideration for a HomeReady loan. Even if they won’t be living at the property it can be considered in the loan application to help anchor the mortgage.
What you need for a HomeReady loan
While the requirements may be less strict than a traditional home loan, there are still several typical requirements needed to acquire a HomeReady loan.
First, is income that is less than or equal to the area median income. Determined by the US Census, the area median income, helps Fannie Mae determine if you qualify for this type of loan. As long as you don’t earn more than the area median income, you’ll qualify for a HomeReady loan.
Second, you’ll need a minimum credit score of 620. Whether this is your first home or you’re refinancing with the HomeReady loan, having a credit score of at least 620 lets Fannie Mae know that you can pay back the loan promptly.
Third, anyone wanting to acquire a HomeReady home loan will need to participate in homeowner education. These are classes that are provided by the program and simply teach homeowners more about the ins and outs of homeownership. Most classes are only 4-6 hours but the cost of the said class needs to come out of the applicant’s pockets.
Check out our Tips for First-Time Homebuyers
Takeaway
A HomeReady Mortgage loan works for a wide variety of applicants and offers only a few restrictions for great benefits in the long-run. Purchasing your first home or refinancing is within your grasp no matter your situation.
