Fannie Mae HomeReady Program

For one-unit principal residences, the program allows for a maximum LTV of 97%, requiring a down payment of as little as 3%. For these one-unit properties, there is no minimum requirement for the borrower to contribute their own funds, meaning the entire down payment can come from other eligible sources. Acceptable sources of funds include gifts, grants, and Community Seconds. However, for two-to-four-unit properties with high loan balances and LTV ratios greater than 80%, a minimum borrower contribution of 5% from their own funds is required.

Yes, one of the significant benefits of the HomeReady program is reduced mortgage insurance (MI) coverage requirements for loans with high LTV ratios. For loans with LTV ratios between 90.01% and 97%, the standard requirement for mortgage insurance coverage is typically 35%, but under HomeReady, this requirement is reduced to 25% coverage. This reduction helps lower the borrower’s monthly mortgage payment. Borrowers may also use financed mortgage insurance for one-unit properties, subject to specific LTV limits.

Yes, HomeReady mortgages can be combined with subordinate financing, such as “Community Seconds” loans, which are often used for down payment and closing cost assistance. When combined with a Community Seconds loan, the Combined Loan-to-Value (CLTV) ratio can go up to 105%. This allows borrowers to layer assistance on top of the first mortgage. The subordinate financing must meet specific eligibility requirements, such as interest rate caps and permitted repayment structures, which can include deferred or forgivable payments.

Homeownership education is required for HomeReady purchase transactions when all occupying borrowers are first-time homebuyers. This requirement exists regardless of the LTV ratio. Borrowers can meet this requirement by completing a course from a qualified third-party provider, such as the Framework online course, or through housing counseling provided by a HUD-approved agency. Exceptions may apply for loans that involve Community Seconds or down payment assistance programs that mandate their own education component, provided it is delivered by a HUD-approved agency.

Yes, non-occupant borrowers (co-borrowers who do not live in the property) are permitted under the HomeReady program. This flexibility allows family members or others to help a borrower qualify. For loan casefiles underwritten through DU, there is no specific LTV restriction solely due to the presence of a non-occupant borrower, allowing LTVs up to 95%. However, broadly speaking, for LTV ratios between 95.01% and 97%, Fannie Mae requires that all borrowers occupy the property unless the subordinate financing is a Community Seconds loan.

Yes, HomeReady offers unique income flexibilities. Rental payments received from a boarder (a person residing with the borrower) may be considered acceptable stable income for one-unit properties. Up to 30% of the total gross income used to qualify the borrower may come from boarder income, provided the boarder has lived with the borrower for the last 12 months and can document shared residency. Additionally, rental income from an accessory dwelling unit (ADU) on the subject property is treated as eligible rental income for qualifying purposes.

The minimum credit score for HomeReady loans is generally 620. Borrowers must typically be underwritten through Fannie Mae’s Desktop Underwriter (DU) system, and the loan casefile must receive an “Approve/Eligible” finding. While manual underwriting is permitted in limited scenarios by Fannie Mae guidelines, specific lender overlays may restrict this, requiring all loans to be run through DU. For borrowers with nontraditional credit, such as those without a credit score, manual underwriting guidelines generally require specific credit references, and in some cases, DU may be used if the borrower has a “thin” file.

HomeReady mortgages must be secured by a property used as the borrower’s principal residence. Eligible property types include one-unit properties (including townhomes and row homes), units in condos and Planned Unit Developments (PUDs), and units in cooperative projects (co-ops) if the lender has specific authority to deliver co-op mortgages. Two-, three-, and four-unit properties are also eligible. Manufactured housing is permitted; however, standard manufactured homes are limited to 95% LTV, while those meeting “MH Advantage” criteria may go up to 97% LTV. Investment properties and second homes are not eligible for this program.

To be eligible for a HomeReady mortgage, the borrower’s total annual qualifying income must not exceed 80% of the Area Median Income (AMI) for the property’s location. In determining eligibility, lenders must count the income from all borrowers who will be listed on the mortgage note. Lenders verify this by comparing the borrower’s income to the applicable AMI used in Desktop Underwriter (DU) or on Fannie Mae’s website. This income limit applies to properties in all locations, including low-income census tracts.

The HomeReady mortgage is a conventional community lending mortgage designed to help creditworthy low-to-moderate-income borrowers achieve homeownership. It offers underwriting flexibilities, such as lower down payment requirements and broader acceptance of various income sources, to expanded eligibility. The program is available to all Fannie Mae lenders without the need for special approvals and can be used for both purchase money transactions and limited cash-out refinances. The program allows for a loan-to-value (LTV) ratio of up to 97% for the purchase of one-unit principal residences, making it a highly competitive option for borrowers with limited funds for a down payment.