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Down payments don’t grow on trees. Between high rents, deepening student loan debt and cost of living increases, it can be tough to qualify for a mortgage – even if you have good credit.
Fannie Mae’s HomeReady® mortgage loan program was created to help lower-income borrowers with high credit scores get into homes of their own. HomeReady® loans feature competitive interest rates and a high level of flexibility.
We’ll explain how the program works, the eligibility requirements, benefits and next steps if you want to apply.
What Is a HomeReady® Mortgage Loan?
HomeReady® mortgage loans are conventional loans backed by Fannie Mae. They help creditworthy, low- to moderate-income borrowers buy or refinance a house when they can’t afford a typical down payment.
Fannie Mae’s core focus is helping the general public afford mortgages. The HomeReady® program was launched to serve as an alternative to Federal Housing Administration (FHA) loans.
Who Qualifies for a HomeReady® Loan?
The ultimate goal of the HomeReady® program is to boost homeownership in lower-income communities, communities of color and communities affected by natural disasters. HomeReady® loans help meet the needs of repeat or first-time home buyers who have lower income and good credit.
However, there are specific requirements borrowers must meet to be eligible.
The income limit for all HomeReady® loans is 80% of the median income where the home is located. There’s no minimum income requirement. Use Fannie Mae’s online income tool to determine your eligibility.
You’ll need a down payment of at least 3% to qualify for a HomeReady® loan.The good news is there’s no limit on the amount of money that can come from other sources (like gifts and grants) and be applied to your down payment.
If you’re a first-time home buyer, Fannie Mae will require you to take a homeownership education course from a qualified provider.
Qualified providers must be independent of your lender, and the content must meet National Industry Standards (NIS) or be offered by a housing counseling agency approved by the U.S. Department of Housing and Urban Development (HUD).
What Are the Benefits of a HomeReady® Loan?
There are many benefits to a HomeReady® loan. Here are the highlights:
- Low down payment: The minimum down payment of 3% is lower than the 3.5% required for FHA loans and the 5% required for most conventional mortgages.
- Flexible funding: There’s no minimum personal funds requirement for a HomeReady® loan. Money for the down payment and closing costs can come from multiple sources, including gifts and grants.
- Cancellable mortgage insurance: HomeReady® borrowers can ask to cancel their private mortgage insurance (PMI) after paying down 20% of the home’s value. This is a definite benefit over FHA loans, where mortgage insurance payments last for the life of the loan.
Alternatives to a HomeReady® Loan
If you don’t qualify for a HomeReady® loan – or even if you do – it’s worth considering a few alternatives.
Freddie Mac Home Possible® loan
Freddie Mac – another national, privately held backer of mortgage loans – works under strict government oversight. Its Home Possible® loan product has similar requirements to the HomeReady® loan, but it has a higher minimum credit score requirement (660).
FHA loans are government-backed loans that have a low down payment requirement (3.5%) and a low minimum credit score requirement (500). However, your score needs to be 580 or higher to qualify for a 3.5% down payment. If your credit score falls between 500 and 579, you’ll have to put 10% down.
Because of the low credit score requirement, FHA loans are easier to qualify for. But when it comes to making a down payment, the bar to qualify for an FHA loan starts to rise.
How To Apply for a HomeReady® Loan
Applying for a HomeReady® loan doesn’t add any extra steps to the conventional mortgage application process. There are simply different eligibility requirements.
Here are the steps you’ll need to take before applying:
- Know your credit score: Your score needs to be 620 or higher.
- Assess your financial situation: Decide if a low down payment – and the higher interest rate that likely comes with it – makes sense for your financial goals beyond owning a home.
- Find a lender: Most lenders that offer conventional loans also offer HomeReady® loans – but take your search a step further. Ask lenders if they have experience working with HomeReady® loans and whether they offer good loan terms. Then, compare at least three lender offers.
Once you’ve selected your lender:
- Work with your lender: They’ll help determine whether you meet all the requirements of a HomeReady® loan.
- Apply for the loan: When you apply through a lender, they’ll request financial paperwork, including proof of income (or supplemental income) and copies of your tax returns.
- Go through underwriting: Wait (patiently) as your loan goes through the underwriting process. If the lender requests extra info during this time, it’s your job to answer any questions or send additional paperwork as quickly as you can.
- See if you’re approved: Wait on your lender for the final decision on your loan application.
No, you don’t have to be a first-time homebuyer to qualify for a HomeReady® loan. That said, if you already own a home, you can only have one other financed property at the time of closing.
Both loans are geared toward lower-income borrowers and have income limits to qualify. The biggest difference is the minimum credit score requirement. A HomeReady® loan’s 620 minimum score is lower than 660 minimum for a HomePossible® loan.
HomeReady® mortgages follow conforming loan limits. The maximum limit for a one-unit property is $726,200. This can go as high as $1,089,300 in high-cost areas.
Are You Ready for a HomeReady® Loan?
For many, the journey to homeownership can be clouded by doubt about being approved for a home loan. Mortgage programs, like Fannie Mae’s HomeReady® program, can provide some hope – and maybe a clear(er) path forward.
Take the first step toward buying a home.
Get approved. See what you qualify for. Start house hunting.
The Short Version
- Fannie Mae’s HomeReady® mortgage loan program was created to help lower-income borrowers with high credit scores get into homes of their own
- Most lenders provide HomeReady® loans, and lower-income borrowers with credit scores of 620 or higher can qualify for them
- Like any conventional loan, HomeReady® loans come with a built-in “escape hatch,” which can help borrowers eventually get out of paying mortgage insurance
Fannie Mae. “HomeReady Mortgage.” Retrieved March 2023 from https://singlefamily.fanniemae.com/originating-underwriting/mortgage-products/homeready-mortgage
Fannie Mae. “HomeReady FAQs.” Retrieved March 2023 from https://singlefamily.fanniemae.com/media/8316/display
Fannie Mae. “Lender Fact Sheet, HomeReady Mortgage.” Retrieved March 2023 from https://singlefamily.fanniemae.com/media/16486/display
U.S. Department of Housing and Urban Development. “Let FHA Loans Help You.” Retrieved March 2023 from https://www.hud.gov/buying/loans
Freddie Mac. “Home Possible® Mortgage, All For Home.” Retrieved March 2023 from https://sf.freddiemac.com/content/_assets/resources/pdf/fact-sheet/home_possible_factsheet.pdf
Federal Housing Finance Agency. “FHFA Announces Conforming Loan Limit Values for 2023.” Retrieved March 2023 from https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Announces-Conforming-Loan-Limits-for-2023.aspx