Homeownership is the American dream, but for some people, it is harder and takes longer to achieve due to less than perfect credit, lack of money saved for a down payment, and other roadblocks that many individuals face. For those borrowers that may not be eligible for a conventional mortgage, they may be able to buy a home with a HomeReady loan.

Who is the HomeReady Loan Right For?

The HomeReady loan is an affordable and flexible mortgage for first-time and repeat homebuyers to purchase a house or refinance at a competitive interest rate. It comes with a low down payment requirement of as little as 3%. Additionally, after you build home equity, you can remove the mortgage insurance requirement.

The flexibility of a HomeReady loan allows non-occupying co-borrowers. For example, parents, who won’t be living in the home, can be co-borrowers on the loan to help their children qualify for a mortgage and purchase a home. Income limits may apply.

Additional income sources are also considered, including future rental payments from a unit in the property you’re purchasing. You’re also allowed to accept gifts from friends and family toward your down payment and closing costs.

Are You Eligible for a HomeReady Loan?

The first step is to determine if you qualify for a HomeReady loan. Here are the loan requirements for consideration:
You have a credit score of 620 or higher. You may have the option to use alternative credit history to help meet this qualification. Alternative credit history includes factors like payments on rent and utilities.

You must not own any additional residences in the country. You don’t have to be a first-time homeowner to qualify, but you cannot currently own another home.

You must attend homeownership education courses. These courses may be completed online in as little as one hour and will help educate you on the financial challenges of homeownership.

Your income must be equal to or less than 80% of your area’s median income (AMI). You can look up your address on Fannie Mae’s HomeReady eligibility page to find out your location’s specific limits.

Additional Details on HomeReady Loans

One of the most frequently asked questions about a HomeReady loan is whether an applicant must be a first-time homebuyer. The answer to this is no; you don’t need to be a first-time homebuyer. However, as mentioned, you cannot currently own another home when you apply.

When it comes to the type of property you can buy with the loan, it can be a single-family house, condo, townhouse, or two- to four-unit property, as long as the property is your primary residence. Additionally, you can get a manufactured home, for which you will need to provide a 5% down payment. Borrowers need to put at least 3% down for a single-family home, while a 15% down payment is required for a two-unit property. In the case you want to get a property with over three units, you will be asked to put 25% down.

The HomeReady mortgage is a flexible and affordable option compared to other loan products, such as an FHA loan. This is because with HomeReady, you can cancel the mortgage insurance premium once you build up 20% equity in your home, which means you may have lower mortgage insurance costs with this type of loan.

A HomeReady loan is ideal for individuals who have limited income sources, less than perfect credit, and those who don’t have enough savings for a down payment. Likewise, you can use the loan to refinance an existing mortgage as well.

To see if the HomeReady loan would be the right choice for you when purchasing or refinancing, speak to a Cross Timbers Mortgage loan advisor today.