Fannie Mae HomeReady Mortgage Guidelines And Requirements

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Fannie Mae HomeReady Mortgage Guidelines And Requirements

There are two types of home loan programs:

  • Government Loans which are home loans insured by government agencies
    • FHA, VA, USDA are government loans
  • Conventional Loans which are not insured and/or have government/agency insurance

In this article, we will cover and discuss the Fannie Mae HomeReady Mortgage Guidelines And Requirements.

With the overwhelming variety of mortgage products available, many Americans do not know about the Fannie Mae HomeReady mortgage program by Fannie Mae.

  • This is an amazing mortgage product designed to help low-to-moderate income borrowers
  • It also gives lenders the confidence to make these loans
  • There are some advantages to using the Fannie Mae HomeReady mortgage program over FHA financing
  • Some benefits includes such as able to cancel mortgage insurance
  • In this blog we will go over more details about the Fannie Mae HomeReady product and some of the requirements

What Is Fannie Mae HomeReady Mortgage Program?

What Is Fannie Mae HomeReady Mortgage Program

Fannie Mae HomeReady Mortgage is a conforming loan program created and launched by Fannie Mae to help and assist lower-income homebuyers and homeowners with decent credit to purchase and/or refinance their homes. Freddie Mac’s equivalent of Fannie Mae HomeReady Mortgage is called Freddie Mac Home Possible.

  • Fannie Mae does not require buyers to be first time home buyers
  • Buyers can own other real estate and qualify for Fannie Mae HomeReady Mortgage
  • Candidates need to enroll in home buyer education required (online). HomeReady offers reduced down payment on the home purchase
  • Lower private mortgage insurance premiums
  • There are Loan Level Pricing Adjustments (LLPA) for borrowers with lower credit scores
  • Maximum LLPA is capped at 1.5%
  • There are no minimum borrower contribution requirements
  • The down payment funds can be contributed by gifted funds and/or non-for-profits
  • Homebuyers can purchase one to four-unit owner occupant properties
  • Potential rental income on 2 to 4 units can be used as qualified income
  • Potential rental income is the income the home appraiser will note on the appraisal
  • Income from occupant household member who is not on the loan may be considered as compensating factor by mortgage underwriters

Non-occupant co-borrowers allowed but both incomes cannot exceed the qualified income limit.

Fannie Mae HomeReady Mortgage

Fannie Mae HomeReady Versus FHA Loans

Fannie Mae HomeReady mortgage product by Fannie Mae is a great alternative to FHA financing for low down payment mortgages.

  • Home Buyers can actually put down less than an FHA loan
  • Buyers must put down at least 3% to use the HomeReady loan versus 3.5% with FHA financing

The home ready mortgage was designed for Borrowers with limited cash for down payment. here are a few basic requirements:

  • Have low to moderate income (must meet income eligibility requirements)
  • First time home buyer or repeat home buyers are allowed
  • Must have a credit score greater than 620, ideally above 680 or more for more favorable interest rates
  • Have limited cash for down payment

Home Buyers who feel they meet these requirements, please reach out to Mike Gracz of Gustan Cho Associates Mortgage Group at 630-659-7644 or text Mike for faster response. Either myself or one of my teammates will assist and help answer any questions.

what are teh Roles Of Fannie Mae And Freddie Mac

Roles Of Fannie Mae And Freddie Mac

Conventional Loans are called conforming loans because they need to conform to Fannie Mae and/or Freddie Mac Guidelines.

  • Many often get confused about why conventional loans need to meet Fannie and/or Freddie Guidelines if they are not guaranteed by the government
  • The role of Fannie Mae and Freddie Mac is to provide market liquidity to mortgage bankers and purchase loans lenders originate and fund
  • All lenders fund conventional loans with their warehouse lines of credit which is like a giant credit card
  • Once they use their warehouse lines of credit, they sell the loans and relieve their lines of credit to originate and fund more loans
  • Fannie Mae and Freddie Mac will not purchase mortgages that do not conform to their guidelines

The Federal Housing Finance Agency (FHFA) is the government regulator that regulated both Fannie Mae and Freddie Mac.

Benefits Of Fannie Mae HomeReady Mortgage

What are some advantages to the HomeReady program?

  • There are instances where Conventional Loans is the only route for home buyers
  • This holds true with borrowers with higher student loan balances
  • Conforming loans allows for Income Based Repayment (IBR) where FHA requires 1.0% of outstanding student loan balance to be used
  • Home buyers with a prior mortgage included in Chapter 7 Bankruptcy, the waiting period is four years from discharged date of Chapter 7 with conventional loans
  • The recorded date of the housing event does not matter
  • The mortgage cannot be reaffirmed after the Chapter 7 Bankruptcy
  • FHA requires a three year waiting period after the finalization of housing event (foreclosure, deed in lieu, short sale)
Fannie Mae HomeReady

Here are additional benefits of Fannie Mae HomeReady Mortgage:

  • Cancelable mortgage insurance
    •  This is the main advantage over FHA financing
    • FHA mortgage insurance does not go away when borrowers pay the loan down to 80% LTV (loan-to-value)
    • Once Equity position reaches 20% the overall mortgage payment will go down homeowners can  eliminate mortgage insurance
  • Lower Mortgage Insurance Requirements
    • In today’s rising rate environment, mortgage insurance premiums have skyrocketed
    • The mortgage insurance coverage is only 25% for loan-to-values of 90% – 97% with the HomeReady program
  • Low Down Payment
    • Home Buyers can put down as little as 3%, plus the funds can come from multiple sources
    • Funds can be own funds, a gift, grants, or community second
    • NO MINIMUM PERSONAL FUNDS REQUIRED!
  •  No geographical loan amount restrictions
    •  Does not follow the County loan limits like FHA loans
  • Can you use supplemental border rental income to qualify
    •  Use the income by renting out a room of house for qualification purposes
  • Non- occupying co-borrowers are allowed

Income Limits On Fannie Mae HomeReady Mortgage

what are the Income Limits On Fannie Mae HomeReady Mortgage

Fannie Mae HomeReady Mortgage income limit caps will be different depending on where the subject property is located.  Use this link to determine the income limits for Home Ready.

Fannie Mae and Freddie Mac created the Fannie Mae HomeReady Mortgage and Freddie Mac Home Possible Loan Program to promote homeownership for first time home buyers with lower to moderate household income. Both HomeReady and Home Possible are a great program for homebuyers with families who are living paycheck to paycheck and have little down payment towards a home purchase.

How To Start The Mortgage Pre-Approval Process

The process for acquiring a Fannie Mae HomeReady loan is the same as a regular mortgage.

  • The only addition is buyers must complete the Framework online education program
  • This is a home counseling education course, offered in both English and Spanish
  • This course is designed to give future homeowners the knowledge for sustainable home ownership
  • It will give home buyers the knowledge and expectations of things that may pop up while owning a home
  • Completion of this course is part of the reason private mortgage insurance is lowered

Below is a list of common items we will require:

  • Last 60 Days Bank Statements – to source down payment
  • Last 30 Days Pay Stubs
  • Last Two Years W2’S
  • Last Two Years Tax Returns
  • Driver’s License

Home buyers who feel this program might be a good fit please reach out to us at Gustan Cho Associates. Please call us directly with questions, we’re available 24/7 or apply at

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2 Comments
  1. John Wenzel says

    Can I buy a 3 family home to occupy with 3% down payment

    1. Gustan Cho, NMLS 873293 says

      FHA allows up to 4 units to be purchased with FHA Loans as long as it is owner-occuppied. Please email me at gcho@loancabin.com.

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