When it comes to homeownership, one of the biggest initial barriers is the down payment. Hoping to generate 20% of the purchase price, many would-be homeowners delay purchasing a home for years.
It can be tough to save for a down payment, but with the HomeReady plan from Fannie Mae, you can purchase a home with as little as 3% down. While it has limitations, this program could help you free the logjam created by down payment requirements…
The HomeReady Program from Fannie Mae
The HomeReady program is designed for low to moderate-income buyers who may not be able to save for the larger down payment that is often required for home mortgages. The program is actually quiet new. Create in 2015, it is a program that is backed by the federal government through Fannie Mae.
The biggest selling point of the HomeReady program is the low down payment. With only 3% down, you can qualify for a loan and move into a comfortable, affordable, reliable home.
The program, which is ran by Fannie Mae, has many benefits for borrowers, but, to be honest, it’s not for everyone. However, if you qualify, the program could be your solution to the down-payment problem.
If you are still struggling with down payments, there are down-payment assistance programs available.
Who is the Right Borrower for HomeReady?
The ideal borrower for the HomeReady program is a low to moderate-income borrower with decent credit who is looking to either buy or refinance a home. To be eligible for the program, you can be either a first-time or repeat buyer. In most cases, you will need to have a credit score of over 620. However, if you have a credit score of 680 or better, you will likely qualify for better rates through the program.
Benefits of the HomeReady Program
There are many benefits that come with the HomeReady program. As we discussed above, the top benefit is the 3% down payment. This means that if you are purchasing a house worth $100,000, you could qualify for the loan with only a $3,000 down payment. Many other programs will require larger down payments, so this can be crucial for initial entry into homeownership.
The program brings cancellable mortgage insurance, which can save money for the homeowner. It also has immediate appraisal orders from the lender, which speeds the home-sale process. There are no geographic restrictions, and with the Day 1 Certainty program, lenders can deliver a better experience for borrowers and homeowners.
The program also brings the opportunity to use a diverse range of income sources to qualify with a wide variety of borrowers. For example, you can have a parent be a co-borrower on the loan and use their additional income to qualify. You could also buy a home with a relative and combine your incomes to purchase a larger house. If you rent out a room in the home, you could also use that income to qualify. The greater flexibility in income options makes the program even more attainable.
Downsides to HomeReady Program
There are, of course downsides to using the program. In most cases, you will find that users have to pay a higher interest rate on their loans. These interest rates can change, but you may find that HomeReady loans come with interest rates roughly .5% higher than traditional or conventional mortgages. This might not sound like much, but that .5% can mean thousands of dollars over the life of a 30-year mortgage.
Another downside of the program is the loan limits. The program is designed for low to moderate-income borrowers, so for obvious reasons there is a limit on the amount that can be borrowed. The limits vary by region (as do income limits), so borrowers in, say, Connecticut, will have different limits than a borrower in Wyoming. The loan limits, however, are still relatively high, and they should not be restrictive for borrowers seeking low to moderate-priced homes in virtually every region of the country. For example, borrowers seeking a one-unit home in San Diego County will be eligible for almost $680,000, which would cover many (but obviously not all) homes in even the high-priced San Diego area.
The other big downside is the potential income limits. Because the program is meant to encourage homeownership among low and moderate-income borrowers, Fannie Mae has set limits for certain areas on how much you can earn while using the program. Again, these limits are not extreme, but they may force some people out of the program.
HomeReady Educational Requirements
To be approved for a HomeReady loan, you will also need to complete an educational program. This education helps homeowners understand the basics of ownership, allowing them to gain essential knowledge that prepares them for a life of homeownership. At least one borrower on each HomeReady purchase must complete the education requirements, which is a framework course provided by a trained professional. There is an established curriculum and instructional goals that will cover understanding the mortgage process, home inspections, budgeting, and more. It typically occurs between the loan application and closing, but the sooner you can complete the application the better. The education must be completed before closing the loan.
During the education, the trainer must offer optional referral for housing counseling, which consist of meetings with a trained professional. This counseling can come in person, over the phone, or through video conferencing. They can also be one-on-one or through a classroom. The counseling will cover a wide range of topics, including the differences between buying and renting, how to establish a household budget, review of credit reports, and understanding of each person’s goals. In most cases, it is best to complete counseling before the borrower selects a home.
Learn More About HomeReady with San Diego Purchase Loans
If you are interested in the HomeReady program, contact San Diego Purchase Loans today. We’ll help you understand all the details of the program so you can make the right decision for your specific needs.
From jumbo loans to HomeReady, we are here to help fulfill your homeownership dreams!
Chad and his team were very attentive to all of my needs, they called , emailed and checked in often. No question was left unanswered! Maria was a superstar! taking all my calls no matter the time or day and walking me through every process. The follow through was amazing and I am just so happy that my realtor referred them to me. I was originally referred to another lender that pretty much had no time for me nor did they even bother to try and find me the right loan since I am a widow with one income and a first time buyer with so so credit. I am completely happy with my loan and everything they did for me! Thank you Chad, Maria and Karina for all you did!
“Chad and his team are exactly who you want handling the financing of your home. Whether it be a new purchase or refinance, he and his team are one of the most professional, responsive group of people I’ve worked with. Buying a home can be very stressful and Chad and his team took all of the necessary steps to make the process as painless and as quick as possible. They are extremely knowledgeable, organized and have great follow through. You won’t ever be left wondering what the next steps are. I highly recommend him and will use him in all of our real estate transactions moving forward.”
I was referred to Chad by my Realtor for a purchase of a new house. The experience with Chad and the team (I mainly worked with Juliann) was nothing short of outstanding. From start to finish there were always quick to respond and when needed, notify me of any new documentation that was required. There were very helpful explaining to me the pros and cons of different financing options as well as some other loan related issues, such as termite clearance outside the purchase contact and septic tank certification process. Overall, very knowledgeable and processional team. Loan preapproval was done in a single day and loan documents were ready for signing in 21 days, which was 9 days ahead of schedule. That never happened to me before.