Finding the right mortgage to finance your home is one of the most important decisions you’ll have to make during the home buying process.
We’ll walk you through the benefits of a HomeReady loan, explore the qualifications and requirements and explain all the steps you’ll need to be able to apply for this type of mortgage.
What Are The Benefits Of HomeReady?
The Federal National Mortgage Association (Fannie Mae) provides housing financing to home buyers in the U.S., and HomeReady is a program overseen by Fannie Mae. HomeReady makes it easier for low-income and low-credit-score buyers to get approved for a home loan. HomeReady is a conventional loan that offers lower down payment and mortgage insurance requirements.
This mortgage product also has several perks designed to assist low-income buyers. HomeReady allows you to accept gifts from friends or family toward your down payment – an option that could take a few more steps when you get other conventional mortgages. In addition, you’re allowed to cancel your mortgage insurance once you’ve paid down 20% of your home’s value.
HomeReady also has lower down payment requirements (lower than FHA loans), which can help you purchase a home without having to save for a large down payment. You can also use alternative credit to help you qualify, which is ideal if you’re working to rebuild your credit or don’t currently have a credit score.
Lastly, you can also use a HomeReady loan to refinance your current home loan, but you cannot take cash out of your equity.
Find out what you can afford.
Use Rocket Mortgage® to see your maximum home price and get an online approval decision.
Who Qualifies For HomeReady?
You’ll need to meet certain minimum criteria, and there are only three major requirements:
- You’ll need a credit score of 620. Your income can be on the low end, but you’ll still need to meet a 620 minimum credit score requirement. Many other conventional mortgages have higher credit score requirements, so the reduced score minimum can help you get the financing you need, even if your credit isn’t perfect. HomeReady also allows alternative credit history to be considered to help meet this qualification (check with your lender for more information).
- You must not own any additional residences in the country. You don’t have to be a first-time homeowner to qualify, but you can’t currently own a home with this mortgage type.
- You must attend homeownership education courses. Homeownership courses will help prepare you for the financial challenge of owning a home. The HomeReady mortgage requires participation in 4 – 6 hours of approved courses to help arm you with the education you’ll need as a homeowner.
HomeReady Income Limits
Not everyone who meets the above minimums can qualify for a HomeReady loan – there are also some income criteria you’ll have to meet to get approved for this mortgage.
Your income must be equal to or less than 80% of your county’s area median income (AMI). Look up your address on the HomeReady eligibility page to find out about your location’s specific limits.
You may not have to worry about income limits if you live in a low-income area. Low-income census areas are zones where the median household income is 20% below the location’s average median household. You can make more than the income requirements and still be eligible for a HomeReady mortgage.
How Much Do I Need To Put Down On A HomeReady Mortgage?
The low down payment requirements are the main reason why you may be attracted to the HomeReady mortgage. Fannie Mae allows you to fund up to 97% for a single-family home. That means you need to make a down payment of just 3% of the home’s value.
The 3% requirement is even lower than the down payment requirement for FHA loans, which is 3.5%. Fannie Mae allows you to accept large gifts from others to help cover the down payment requirement. In fact, you can fund it entirely with gifts.
How Is HomeReady Different From An FHA Loan?
A HomeReady loan and FHA loan target the same type of buyers but aren’t the same product. The HomeReady mortgage is funded by Fannie Mae, while the FHA mortgage is backed by the federal government. Since HomeReady is a conventional mortgage owned by a private lender, there is more flexibility with down payment requirements and credit history.
The HomeReady loan requires a 3% down payment that can be funded fully through gifts. The FHA loan requires a 3.5% down payment (10% for lower credit scores) that has limitations on using gifted money for the down payment. The HomeReady loan also allows for alternate credit reporting, while the FHA does not.
Both mortgage products can be purchased through most local, national and online lenders and are ideal for first-time and low-income home buyers.
Are HomeReady Mortgages Available On All Homes?
HomeReady mortgages are typically used on single-family, one-unit homes, but can be applied toward a variety of home types. You can purchase 2- to 4-unit homes as long as one of the units will be your primary residence.
You can use HomeReady for a planned unit development, townhouse, condo and more. Talk to your lender about the property types that they will finance and read more about the full requirements and types of homes that qualify for the HomeReady loan.
What Are The Terms On HomeReady Loans?
Your mortgage term refers to the length of time you pay on your mortgage.
Fixed-rate mortgages are loans that have a set rate you pay off over a predetermined length of time. Typically, the longer your term, the more interest you’ll pay. Longer-term mortgages also tend to have smaller monthly mortgage payments, since the repayment plan is spread out over a longer period of time.
Rocket Mortgage® does not allow adjustable rate mortgages with this program and does not offer this program on second homes or investment properties.
How Do I Apply For A HomeReady Loan?
Think a HomeReady loan is the right choice for you? If so, you probably have some questions about the application process. We’ll walk you through all the steps you need to follow to apply for a HomeReady loan so you know exactly what to expect.
Step 1: Review and Compare The Loan Benefits
Look before you leap into the HomeReady loan – be sure you’ve reviewed all the benefits carefully. The HomeReady mortgage has higher interest rates than other conventional loans because of its lenient down payment policy. There might be other mortgage options that will provide you with lower rates if you can afford a larger down payment.
Research the options available to you. If you decide that HomeReady has the most to offer, proceed to step two.
Step 2: Review The HomeReady Requirements
Next, you’ll want to make sure you meet the qualifications for the HomeReady mortgage, including the income limits, credit score requirements and homeownership education courses. Once you’re confident that you meet the requirements, you’re ready to find a lender.
Have questions about the requirements for HomeReady? Move on to step three and talk to your home loan expert about your concerns before applying.
Step 3: Find A Mortgage Lender
HomeReady is offered through Fannie Mae, but you’ll need to find an outside lender to apply through. Most conventional lenders offer the HomeReady mortgage, so you’ll have plenty of local, national and online lenders to sort through.
HomeReady is designed for all lenders to use, but a lender can opt out if they aren’t interested in servicing this type of loan. This program is available through Rocket Mortgage®.
Step 4: Apply for a HomeReady Loan
You’re ready to apply once you’ve found a lender you like. You’ll complete an application and provide supplemental documentation to verify your income and provide copies of your taxes. This step can take time if you have to retrieve hard copies or mail documentation. Rocket Mortgage® can share your online bank account and tax information in real time and make this step happen quickly.
Step 5: Wait for Your Approval Decision
Once you’ve applied, your lender will crunch the numbers and determine if you’re approved for a mortgage, set your mortgage rate (which is the rate of interest you’ll pay), and decide how much money you’re approved for. Then you can start shopping for a home or make an offer if you’ve already found one.
Don’t feel crushed if you aren’t approved for a HomeReady loan – you still have options! Check with Rocket Mortgage® to learn what other mortgage types might be a good fit for your financial situation.
Get approved to buy a home.
Rocket Mortgage® lets you get to house hunting sooner.
Fannie Mae’s HomeReady mortgage is a great product for low-income applicants who want to put down the minimum down payment for a mortgage. This mortgage allows you to use gifts toward your down payment and also offers the option of canceling mortgage insurance once you’ve paid off 20% of the home’s value.
You can begin the process today with Rocket Mortgage® if you’re interested in the HomeReady mortgage or would like to explore other loan options.
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