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HomeReady Loans
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For many aspiring homeowners, finding an affordable path to homeownership can feel like a distant dream. HomeReady loans are a unique and flexible mortgage option designed to make this dream a reality for a broader range of individuals and families. In this article, we delve into the world of HomeReady loans, demystifying their features, benefits, and eligibility criteria.
LESSON CONTENTS
What are HomeReady loans?
HomeReady is a specialized mortgage program offered by the Federal National Mortgage Association (Fannie Mae), one of the government-sponsored enterprises (GSEs) that facilitates access to affordable mortgage financing in the United States. It assists first-time homebuyers (FTHBs) and low-to-moderate-income borrowers in achieving their dream of achieving their dream of homeownership. It allows borrowers to use cash on hand for the transaction, whereas other loans require funds to be traceable or seasoned for at least 60 days.
Under the program, eligible property types include one-unit primary residences, encompassing single-family homes, townhouses, condos, and planned unit developments (PUDs). Additionally, manufactured housing qualifies and is capped at a loan-to-value ratio of 95%. It also allows for borrowers to obtain a limited cashout refi opportunity to tap into their home’s equity.
One notable distinction of a HomeReady program is its flexible income limits, which are based on the property's location and the borrower's area median income (AMI). This feature is advantageous for borrowers residing in areas with higher housing costs, as it may allow them to qualify for the program. In contrast, programs like FHA have fixed income limits, potentially limiting eligibility for some borrowers in high-cost regions.
HomeReady eligibility requirements
A HomeReady program offers attractive terms and benefits for low to moderate-income borrowers. However, like any mortgage program, it comes with eligibility criteria for potential homeowners. You must meet the following HomeReady loan limits.
80% area median income (AMI):
One of the fundamental eligibility requirements for HomeReady is your income. Your income must not exceed 80% of the AMI for the location of the property you intend to purchase. This criterion ensures that HomeReady primarily benefits individuals and families with moderate incomes, making homeownership accessible in areas with varying cost-of-living standards.
620 credit score:
Even though HomeReady is geared towards low-income borrowers, you must have a qualifying credit score. While traditional loans may have stricter credit score requirements, HomeReady permits credit scores as low as 620.
Homeownership education:
Fannie Mae requires HomeReady borrowers to complete an online homeownership education course. This education component helps borrowers better understand the responsibilities of homeownership, budgeting and the homebuying process, ensuring they are well-prepared for buying a home for the first time.
HomeReady benefits
HomeReady loans stand out as an attractive choice due to their numerous benefits that set them apart from other options. One key advantage is the low minimum down payment requirement of just 3%, significantly lower than many traditional FTHB loans demand.
Generally, a lower down payment makes homeownership more accessible for individuals and families, especially those with limited savings. It allows them to achieve their homeownership dreams with less upfront cost.
Additionally, its flexibility in income calculations and credit criteria makes HomeReady a versatile option that addresses the unique financial situations of a wide range of borrowers. As an option, it provides low-income borrowers with a clear path to homeownership and offers the following benefits.
Low down payment requirement - 3% minimum:
One of the primary barriers to homeownership for many borrowers is the challenge of saving a substantial down payment. HomeReady's low down payment requirement, as low as 3% of the home's purchase price, makes homeownership significantly more accessible. Borrowers can enter the housing market with less upfront cash, which is especially beneficial for those with limited savings.
$2,500 credit for down payment and closing costs
To address the greatest barriers to homeownership HomeReady loans now include a $2,500 credit for down payments and closing costs for very low-income purchase (VLIP) borrowers. Borrowers with a qualifying income of less than or equal to 50% of the applicable area median income (AMI) of the subject property’s location are eligible. Consult your Loan Officer for eligibility.
Income flexibility:
Usually, income levels vary significantly by location. HomeReady considers the borrower's income in relation to the area's median income. Borrowers must have an income that does not exceed 80% of the area median income (AMI). As a result, borrowers with moderate incomes may qualify for the program, even in higher-cost housing markets.
Qualifying income includes boarder income:
Under HomeReady loan guidelines, rental income from individuals renting ancillary dwelling units or boarder in the borrower's primary residence can be considered as qualifying income.
Fixed-Rate (FRM) and Adjustable-Rate Mortgage (ARM) options:
HomeReady allows you to choose between FRM and ARM. Borrowers can opt for the stability of a fixed interest rate or the initial lower interest loan rates typically associated with ARMs.
Lower mortgage insurance costs:
HomeReady offers reduced private mortgage insurance (PMI) premiums compared to standard conventional loans with low down payments. The lower mortgage insurance costs result in more affordable monthly mortgage payments. Moreover, mortgage insurance is cancellable when the borrower's equity exceeds 20%. PMI may be removed per FNMA Servicing Guide policy (restrictions apply).
Purchase and Cash-Out Refi available:
HomeReady supports both home purchases and limited cash-out refinances with a maximum loan-to-value (LTV) ratio of up to 95 percent. This means that borrowers can access their home's equity to cover various expenses or consolidate debt, making it a versatile option for those looking to refinance their existing homes. Check with your lender on requirements and limitations.
Borrower support:
HomeReady allows for the inclusion of non-borrower, non-occupant income in determining the debt-to-income (DTI) ratio. This flexibility can be helpful for borrowers who want to enlist the help of family members to qualify for the mortgage. Additionally, it allows nonresident co-borrowers for persons with disabilities.
Closing thoughts
Collectively, these features highlighted above aim to reduce barriers, provide financial flexibility and promote informed decision-making. Ultimately, you can achieve your dream of homeownership comfortably by utilizing this program. Consult with a qualified lender from your bank or credit union to determine your eligibility and explore how a HomeReady can make your homeownership dream a reality.
Standard account and credit qualifications apply. All loans subject to final credit approval. Rates and terms are subject to change without notice and are dependent upon credit performance. Visit Ent.com/Legal to review Ent’s Important Loan Information and Disclosures.
Financing available on homes in Colorado. Property insurance is required. Consult a tax adviser for further information regarding deductibility of interest and charges.
Insured by NCUA | © 2023 Ent Credit Union
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