Are You Home Ready?
Fannie Mae has bestowed an early holiday present to those who wish to become home owners. Their new HomeReady™ Program released in mid-December is designed to remove many of the restrictions that have previously been imposed upon those who were trying to purchase in today’s real estate market. This program is poised to make a big impact with those who did not think they could purchase a home or refinance their present homes. How will HomeReady™ make such a big impact?
First, the biggest obstacle to purchase a home is coming up with the cash necessary to fund the transaction. With today’s skyrocketing rents, it is hard to save up several thousands of dollars. However, HomeReady™ is now lessening the cash required:
- Low down payment.
With a low 3.0% down payment required, the cash requirement is lessened significantly. On a $300,000 purchase, a 3.0% down payment is less than $10,000. That is much less than the cost of a late model used car.
- Gifts allowed.
Fannie Mae is allowing all the cash required to fund the transaction to come from a gift from an immediate family member. When parents help their children purchase a home, they are providing them with the most significant financial assistance possible because in the long run, owners have an average net worth of over ten times that of renters, according to studies published by the Federal Reserve Board.
- Help with closing costs.
Fannie Mae permits lenders and sellers to pay most or all of the required closings costs, further reducing the cash needed to get to closing. It should be noted that these solutions could raise the price of the home or rate on the mortgage slightly.
Second, HomeReady™ is making it easier for home buyers or those who are refinancing to qualify for a mortgage.
- Parents can help.
Not only can parents give a gift, as an alternative they can co-borrow to help with the income needed to qualify. Parents do not have to live in the home to provide this assistance; however, a 5.0% down payment is required if this solution is utilized.
- Boarder and household income.
These additional sources of income can be used to help qualify with proper documentation and history. For example, perhaps a spouse works, but cannot be on the mortgage because they have a very low credit score. Household income can be used to offset higher debt ratios within the qualification calculations – within certain limits.
Third, HomeReady™ is helping by lowering required payments for your mortgage. Lower payments not only make home ownership more affordable, but also help a prospective home owner qualify for the purchase.
- Mortgage insurance.
HomeReady™ requires less mortgage insurance “coverage,” which lowers the required mortgage insurance payments. In addition, the borrower can pay the premium through a slightly higher rate, which would make the payment tax deductible in most cases. This would lower the effective payment even more.
- Fewer rate premiums.
In the wake of the recession and recovery, Fannie Mae added many costs to their mortgages in order to help fund their debt to their government after the bailout. But now that this debt is largely paid for, they are removing the rate premiums for those who utilize the HomeReady™ solution, especially for those with good credit. Again, this will lower the required monthly payments for the average homeowner.
Finally, Fannie Mae is helping by making more Americans eligible for the HomeReady™ Program. This improved access will mean that this program will become a more universal solution for home buyers.
- No first time buyer requirement.
Unlike their previous 3.0% down payment solution, Fannie Mae is not requiring those who use the program to be first time buyers. The applicant cannot own another home when they close their HomeReady™ transaction, except for parents helping children purchase as previously mentioned.
- Flexible income requirements.
As a low-to-moderate income program, HomeReady™ does limit the income a potential home buyer can make to 100% of the area’s median income limit. However, there are areas which are classified as lower-income areas and if you purchase within these areas, the income limits are increased or they may be waived completely. We can help you determine which areas qualify for the more liberal guidelines and the general income limit for your area.
- Higher loan amounts.
Fannie Mae is not only allowing loans to $417,000 with a low 3.0% down payment, in higher cost areas, the HomeReady™ Program can be used for loan amounts up to $625,500 with a 5.0% down payment. Again, we can help you determine the loan limit within the area in which you are considering purchasing.
- Refinance candidates.
With no-cash out finances allowed at 97% of the value of the home, HomeReady™ will be a great solution for those who previously could not refinance because of a lack of equity. And again for high cost areas the limit would be 95% up to as high as $625,500. With home prices rising in many areas, those who were previously “underwater” may now have a viable refinance solution to take advantage of today’s low rates.
As a matter of fact, Fannie Mae is so dedicated to making sure that the HomeReady™ Program reaches as many prospective homeowners as possible, they are promising that their latest upgrade to their automated underwriting system will automatically alert the lender that a prospective purchaser or refinance candidate qualifies for the program. This means that someone who is thinking about purchasing or refinancing should start with a lender so that they can be pre-approved for the HomeReady™ Program.
Lower cash requirements, flexible qualification guidelines, lower payments and a wider array of those who are eligible? Fannie Mae has created the HomeReady™ solution which is poised to make more Americans home owners in the coming year!