If you plan to buy a house or other properties, knowing about HomeReady mortgage and HomeReady income limits is a must, especially for those who have a limited budget. This mortgage will help you to get a mortgage even without committing the standard 20% down payment. To know more about the mortgage, find all of the explanations in the following paragraphs.
What is a HomeReady Loan?
Also known as the Fannie Mae HomeReady mortgage, it is a loan program for all home buyers with lower income. In this loan, you pay at least a 3% down payment on a loan. The number is lower than the FHA down payment of 3.5%.
Another interesting thing about this mortgage is you can use home buyer grants and gifts funds to cover the upfront costs. Also, the co-borrowers living there or not can propose this mortgage. With all of the easiness, the mortgage becomes one of the easiest loan programs for many people as long as they meet the requirements or Home Ready eligibility.
About Fannie Mae HomeReady Mortgage Lenders
Fannie Mae is one of the lenders or mortgage agencies providing loans with a lower down payment. The program of HomeReady was launched in December 2015. Now, people can get a mortgage from Fannie Mae through many major lenders in the US.
With various facilities offered by Fannie Mae, the mortgage will help more people with low income to have their property. The program itself allows 97% LTV or loan-to-value. It means that you refinance into lower interest rates and payments even when you haven’t had 20% equity.
Qualification to Get a HomeReady Mortgage
When you want to get this loan, you must know all the requirements first. In this case, each lender of HomeReady loan may give you different requirements. However, Fannie Mae sets some minimum qualifications for those who want to apply to the program.
- You have no more than 80% median income in the Census tract. It is the first thing that will be checked by the lenders.
- You have at least a 620 FICO score in most cases.
- You agree to complete an education course on online homeownership. This course is done for about 4 to 6 hours.
- After getting the loan, you have to live in the house bought as your primary residence.
- Your DTI or debt-to-income ratio is no more than 50%. The number is more lenient than other loan programs.
If you meet the qualification, you can apply for the loan program and start to process the fund you need to borrow. Indeed, those who have not met the criteria cannot apply for the program and need to look for other mortgage or loan programs.
HomeReady Income Limits
Talking more about this kind of mortgage, the Home Ready income limits may be different from one area to another area. However, for all areas in the US, the income limit is no more than 80% of the median income in each area (AMI).
For example, the median yearly income in your area is $100,000. It means that you must have $80,000 or less in yearly income to apply for the HomeReady program. Because the purpose of the loan program itself is for lower-income people, so the income limits will not a big problem for the applicants.
Moreover, the income source flexibility also helps many people to get a mortgage easier. In this case, the lenders allow applicants to apply with more than one co-borrower. It means that the combined income from 2 or more people is accepted as long as the income falls within the local limit.
HomeReady Eligibility for the Properties Types Bought Using the Loan
About the eligible property types for Fannie Mae mortgage, borrowers have many options to buy the properties using the loan. As long as the property will be the primary residence, you can buy many types of property you want.
Besides purchasing a single-family house, the loan can be used for buying condominiums, PUD homes, co-ops, manufactured homes, and multifamily houses. For those who want to buy multifamily homes, the borrowers must have a higher credit score, more than 680.
Interest Rates of Home Ready Loan
After knowing HomeReady income limits, now you must know about the interest rates in this loan program. The rate is almost the same as other DP loans. The interest rates might be lower than other DP (down payment) mortgages. This rate can vary depending on the lenders. However, if it is compared to FHA loans, the interest rates are higher.
Products of Home Ready Mortgage
The lenders of Home Ready Mortgage will offer two products for all applicants. Those products are fixed-rate mortgages and adjustable-rate mortgages. The applicants can choose the products depending on their needs and finances.
- Fixed-rate mortgage
In fixed-rate products, the applicants will have four choices from 10, 15, 20, and 30-year fixed-rate mortgages. A shorter-term loan usually will have a lower interest. However, the short-term mortgage will have a higher monthly payment. For this reason, many people prefer to choose the 30-year fixed-rate mortgage.
- Adjustable-rate mortgage
The adjustable-rate mortgage provides three options for the borrowers. Those are 5/1, 7/1, and 10/1 ARM. It means that the mortgage is for 5, 7, and 10 years. This product is much riskier than the fixed-rate mortgage because the interest rate and also monthly payments can rise each year.
Applying for HomeReady Program
Do you think that the HomeReady loan is the right one for you? For those who plan to apply for this program, you can do some steps to know whether this program is the best one for you or not. Get the details as follow.
- Reviewing and comparing the benefits
Before choosing a loan, it is better for you to review the term of the loan carefully. Comparing to other mortgage options must be done as well. This loan has a higher interest rest compared to other loans. Another mortgage can give you a lower interest rate because they offer a high down payment. If you decide on a lower down payment, you can choose HomeReady.
- Checking the requirements
After you know the term, it is your time to check all of the requirements. You must make sure that you meet all of the qualifications such as credit score, income limits, and homeownership courses. If you know that you meet all the requirements, the next step is finding lenders.
- Finding the mortgage lenders
One important thing you need to know that is lenders of HomeReady is private lenders. You cannot apply for the loan directly to Fannie Mae. Many conventional lenders offer this kind of mortgage. So, you will find the lender easier online or offline.
- Applying for the loan
After you chose one lender, you need to complete the application provided. The documentation you submitted will help to verify your income and other things related to the requirements. This fourth step may take time because you need to prepare both soft copies and hard copies of all documents needed.
- Waiting for the loan approval
Once you apply for the loan, and all documents have been submitted, you must wait for the verification process. If you get the approval, you can set the mortgage rate and also the money you will borrow. After that, you can purchase the property as you want.
HomeReady vs Home Possible
You may hear what Home Possible is. This Freddie Mac program works as same as Fannie Mae’s Home Ready. Home Possible has a 3% down payment, an income limit of 805, and is co-borrower friendly. The difference is in the minimum credit score only. As mentioned before, the FICO score to qualify HomeReady is 620 or higher. Meanwhile, in Home Possible, the minimum credit score is 660. This high credit score makes Home Possible more selective in borrowing the fund.
HomeReady vs FHA Loan
FHA loans also provide a mortgage for those who want to buy a property with a low down payment. There are some differences between FHA loans and HomeReady loans. FHA can be a better loan from HomeReady with its lower credit scores.
If you want to apply for an FHA loan, the credit score is 580 in FICO. When you reach the score, you can borrow the loan. it is a good chance for those who have a lower credit score than HomeReady requires with at least 620.
However, HomeReady is a better loan because it offers flexibility for income verification. In this case, you can borrow the fund with more than one co-borrower. Even when only one person lives in the house, there is no problem for co-borrowers who do not live in the house as their primary residence.
Besides, you also can cancel PMI or private mortgage insurance after you pay the loan to 80% of the house’s price. With this matter, the monthly mortgage payment can be lower. Of course, many people like to have a lower monthly mortgage payment to decrease their monthly expenses.
Home Ready Mortgage: Pros and Cons
To complete the Home Ready guidelines, knowing about the pros and cons of this kind of mortgage is important. There are at least four pros and four cons if someone decides to choose this loan for their property mortgage. What are they?
Pros
- All applicants will get a low down payment of 3% only.
- There is flexibility for co-borrowers. One program can be for more than one person.
- There is PMI cancelable. It is different from FHA loans.
- Down payment gifts are accepted in this mortgage.
Cons
- All applicants have to follow a homeownership course first before getting their funds.
- There are income limits to apply for the mortgage. Those who have a high income cannot apply for this mortgage.
- To apply to the program, all applicants should have a higher credit score than other mortgages.
- This mortgage has a higher rate than FHA loans.
Why Do People Choose Home Ready Program?
As explained before that HomeReady is designed for those who cannot afford a home because of high down payment. For this reason, many people are interested in choosing a loan to buy a house. The home price that increases higher and higher every year makes people choose to take the loan. In data from Fool.com, in the first quarter of 2022, the home price in the US reached $428,700. It is higher 30% than in 2021.
Besides, a high living cost in the US also becomes another reason why people tend to choose this mortgage. According to Wordpopulationreview.com, the median living cost for a single family is $273,992 per year. Then the living cost for a household is $61,334.
Moreover, the increase in population in the US also increases the number of people who want to buy property. That is why it is not surprising that many people choose a HomeReady mortgage to purchase a home for their living space. In Macrotrends.net, the population growth in 2022 increased by 0.38% from 2021.
FAQs HomeReady Income Limits
- HomeReady income limits increase 2022
According to Singlefamily.fanniemae.com, the income limits of HomeReady loans have increased in 2022. As of June 24th, it increased by about $8,480, or 12.3% higher compared to the 2021 year. In the notice, this increase was implemented for all applications date Aug 1st, 2022, and afterward. The application before the date will follow the limit of the 2021 year.
- HomeReady income limits household
In The mortgagerports.com, Fannie Mae has set the income limit for the HomeReady loan. The applicants will qualify when they cannot make more than 80% AMI. If the income is higher than 80%, they cannot apply for the program.
- HomeReady income limit calculation
For those who want to know about the income limit, you can look for it on the internet. There is some website providing the limit calculation. As in Ami-lookup-tool.fanniemae.com, you will find the data relating to the Area Median Income of each state in the US. You must know your HomeReady income limits before you apply for the loan because every state has a different AMI.