HomeReady And Home Possible Income Limits: Do You Qualify For These Loans?
Victoria Araj6-minute read
June 30, 2022
Finding the right mortgage to finance your home is one of the most important decisions you’ll have to make when buying a house. For those unable to commit to the standard 20% down payment, there are two notable mortgages available through Fannie Mae or Freddie Mac that make lower down payments possible: HomeReady and Home Possible.
We’ll walk you through the benefits of these two loan options, explore the requirements and explain all the steps you’ll need to be able to apply for these types of mortgages.
HomeReady Vs. Home Possible
While there are a couple subtle differences between the two, HomeReady and Home Possible are both great mortgage options geared toward lower-income, lower-credit score borrowers looking to build wealth through homeownership.
What Is HomeReady?
HomeReady mortgages are home loans financed through the Federal National Mortgage Association (Fannie Mae). A HomeReady loan is meant to help borrowers with low to moderate income buy or refinance a home by reducing the standard down payment and mortgage insurance requirements.
What Is Home Possible?
The Home Possible mortgage program is backed by the Federal Home Loan Mortgage Corporation (Freddie Mac) and helps to finance low to moderate income home buyers with similar benefits as the HomeReady program.
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Benefits Of HomeReady And Home Possible
HomeReady and Home Possible can offer lower down payments requirements than other types of loans, speeding up your journey to homeownership. These loans also offer lower mortgage insurance requirements, increasing the access for low-income buyers to get approved for a home loan.
A lower down payment also means you can purchase a home without having to save for a large down payment. You can use alternative credit to help you qualify. This is ideal if you don’t have the best credit score and need to work to build it.
These mortgage products have several perks designed to assist low-income buyers. For instance, you’re allowed to accept gifts from friends and family toward your down payment – an option that could take more steps with other conventional mortgages.
In addition, you’re allowed to cancel your mortgage insurance once you’ve paid down 20% of your home’s value.
Lastly, you can also use a HomeReady loan to refinance your current home loan, but you cannot take cash out of your equity.
Who Qualifies For A HomeReady or Home Possible Loan?
You’ll need to meet certain criteria to qualify for either of these programs. Here are the three major requirements:
- You’ll need a qualifying credit score. Your income can be on the low end, but you’ll still need to meet a minimum credit score requirement. Both HomeReady and Home Possible loans require a minimum score of 620. Other conventional mortgages have higher credit score requirements, so the reduced score minimum helps you secure the financing you need, even if your credit isn’t perfect. You may have the option to use alternative credit history to be considered to help meet this qualification. Alternative credit history includes factors like payments on rent and utilities. 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 home buyer 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. These courses require participation in 4 – 6 hours of approved courses to help arm you with the education you’ll need as a homeowner.
HomeReady And Home Possible Income Limits
Not everyone who meets the above requirements 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). You can determine your HomeReady eligibility by looking up your address’s AMI, and for your Home Possible eligibility 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 Or Home Possible Mortgage?
The low down payment requirements are the main reason why you may be attracted to the HomeReady or Home Possible mortgage. These loans allow 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.
HomeReady and Home Possible loans also let you accept large gifts from others to cover the down payment requirement. In fact, you can fund your down payment entirely with gifts.
Are HomeReady And Home Possible Available For All Homes?
HomeReady and Home Possible can be applied toward a variety of home types. You can purchase 1- to 4-unit homes as long as one of the units will be your primary residence.
You can use both HomeReady and Home Possible for a planned unit development, townhouse, condo and more. Talk to your lender about the property types that they will finance. Read more on the Fannie Mae website, as well as the Freddie Mac site, about the full requirements and types of homes that qualify for the HomeReady and Home Possible loans.
What Are The Terms On HomeReady And Home Possible 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 payments, since the repayment plan is spread out over a longer period.
Rocket Mortgage® does not allow adjustable-rate mortgages (ARMs) with these programs and does not offer them on second homes or investment properties.
How Do I Apply For A HomeReady Or Home Possible Loan?
Think HomeReady or Home Possible 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 loan so you know exactly what to expect.
1. Review And Compare The Loan Benefits
Look before you leap on a loan! Be sure you’ve reviewed all of the benefits of HomeReady and Home Possible loans carefully. These mortgages have higher interest rates than other conventional loans because of their 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 a lower down payment mortgage has the most to offer, proceed to Step 2.
2. Review The Requirements
Next, you’ll want to make sure you meet the qualifications, 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? Move on to Step 3 and talk to your Home Loan Expert about your concerns before applying.
3. Find A Mortgage Lender
Home Possible and HomeReady are offered through private lenders, but you’ll need to find an outside lender to apply through. Most conventional lenders offer these mortgages, so you’ll have plenty of local, national and online lenders to sort through.
These low down payment mortgages are designed for all lenders to use, but a lender can opt out if they aren’t interested in servicing this type of loan. These programs are available through Rocket Mortgage.
4. Apply For A Loan
You’re ready to apply once you choose a lender. 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.
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 loan – you still have options! Check with Rocket Mortgage to learn what other mortgage types might be a good fit for your financial situation.
FHA Loans: Alternatives To A HomeReady Or Home Possible Mortgage
FHA loans are government loans that, like HomeReady and Home Possible, offer lenient financial requirements for eligible home buyers. For example, the required down payment is only 3.5%. They could be a great alternative if you need more flexibility to qualify.
To begin with, you’ll need a median FICO® Score of 580 or higher. However, to qualify with a credit score at this level, you’ll need to keep an equally low debt-to-income ratio (DTI) of 45% or less. In addition, no more than 38% of your monthly debt payments can go toward housing.
There’s additional good news for those with slightly better credit scores at a median of 620 or higher. Loans are reviewed based on several characteristics, but in many cases, you can get approved with a slightly higher DTI than you could on many other loans. This gives you the flexibility of a higher home buying budget.
FHA Loans Vs. HomeReady And Home Possible
HomeReady and Home Possible loans target the same type of buyers as FHA loans, but they aren’t the same product. While the FHA loan is backed by the federal government, HomeReady and Home Possible are backed by private lenders Fannie Mae and Freddie Mac.
Since they’re conventional mortgages owned by a private lender, there is more flexibility with down payment requirements and credit history. As non-conforming loans, FHA loans work outside of Fannie’s and Freddie’s purchasing standards.
The HomeReady and Home Possible loans require 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. The HomeReady and Home Possible loans also allow for alternate credit reporting, while the FHA does not.
Each of these mortgage products can be purchased through most local, national and online lenders and are ideal for first-time and low-income home buyers.
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The Bottom Line: Are HomeReady Or Home Possible Loans The Right Options?
Fannie Mae’s HomeReady and Freddie Mac’s Home Possible mortgages are great products for low-income applicants who want to put down the minimum down payment for a mortgage.
These mortgages allow you to use gifts toward your down payment. They also offer the option of canceling mortgage insurance once you’ve paid off 20% of the home’s value.
You can get started today with Rocket Mortgage and explore your loan options for either of these programs. Don’t let saving for a down payment delay the purchase of your dream house.
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