HomeReady™ Loan Program



homeready loan program

To compete with low down payment loans, Fannie Mae created the HomeReady™ loan program requiring 3% down.

In this article, we’ll explore the HomeReady™ loan program to see how it stacks up against FHA loans and other low down payment loan options.

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What is the HomeReady™ program?

The HomeReady™ program is a type of conventional loan created by Fannie Mae to help low-income first-time homebuyers.

Many first-time buyers simply cannot afford to put that much money down.  The 3% down payment, which even is lower than FHA loans which require 3.5% down is a very attractive loan option.

The HomeReady mortgage loan is very similar to Freddie Mac’s Home Possible loan program.

HomeReady Loan Requirements

In order to qualify your income cannot exceed 100% of the area median income (AMI). Visit the Home Ready website to check the income limits in your area.

In addition to having a low down payment, HomeReady™ loans have a low credit score requirement of 620. The credit requirement is lower than other types of conventional loans making them easier to qualify for.

2020 HomeReady / Home Possible Requirements

• Only first-time homebuyers are eligible

• Minimum 620 credit score

• Two years of stable employment history

• Alternative credit lines can be considered

• Income cannot exceed 80% of area median income

• 50% maximum debt-to-income ratio

• Cannot have another open HomeReady mortgage

• Attend 4-6 hours of homeownership education courses

Comparing HomeReady™ Loans vs. FHA Loans

FHA loans are government-backed loans, while HomeReady™ loans are issued by insured by private mortgage insurance companies and have lower insurance rates.

They do have a couple of similarities such as a low down payment and they both target low-income home buyers with a maximum debt-to-income ratio of 50%. They also both allow for the down payment to be a gift from a friend or relative.

Key differences between HomeReady™ & FHA

  • Down payment requirements – HomeReady™ mortgage loans have the lowest down payment requirement of any type of home loan at just 3%. FHA loans require a slightly higher down payment of 3.5% as long as you have a minimum 580 credit score. If your score is between 500-579 you will need 10% down.
  • Credit score – FHA loans have the lowest credit requirements of any home loan available. With a minimum 500 credit score, a 10% down payment is needed. Borrowers with a 580+ credit score will need a 3.5% down payment. HomeReady™ loans have a higher credit score requirement of 620.
  • Income limits – There are no restrictions on the amount of income you must have with FHA loans. HomeReady™ loans have strict income limits that require borrowers’ income to not exceed 100% of the area median income (AMI).
  • Income verification – One of the key differences between the two types of loans is that HomeReady™ allows you to use the annual income from non-borrowers who reside in the property from relatives or individuals who are renting rooms. FHA loans will only consider income from borrowers and co-borrowers who are on the loan application.
  • Mortgage insurance – The HomeReady program are a type of conventional loan that requires monthly PMI payments until the loan-to-value ratio reaches 78%, at which point PMI is no longer required. FHA loans require two types of mortgage insurance premium (MIP), a one time up-front MIP payment equal to 1.75% of the loan amount, plus an ongoing monthly MIP payment. The length of time MIP is needed depends on the down payment amount. Borrowers with less than 10% down will have MIP payments for the life of the loan. Borrowers with at least 10% down will have to carry MIP for 11 years.
  • Credit history – Only traditional lines of credit that appear on your credit report can be used to qualify for an FHA mortgage. HomeReady™ loans let lenders use non-traditional credit lines such as rental payments to help borrowers with limited credit history qualify.

FHA Loan

HomeReady / Home Possible Loan

Down Payment

580 with 3.5% down
500 with 10% down

3%

Minimum Credit Score

500-580

620

Income Limits

No income limit

80% of area median income
Varies by county

Mortgage Insurance

Up-front MIP payment
Monthly MIP payments

• >10% down MIP cancels in 11 yrs
• <10% down MIP required for the life of the loan

Monthly PMI payments

• PMI canceled when LTV ratio reaches 78%

Income Sources

Only applicant's income can be used

Can use income from parents, renters, or anyone else living in the home

Max loan-to-value

96.5%

97% LTV, 105% TLTV with Affordable Seconds, and 97% HTLTV for 1-unit properties

Homebuyer Education

Not required

4-6 hours of homeownership education courses
Cost: $75

Debt-to-income

43% - 50%

50%