“How to Apply for a HomeReady® Mortgage: A Comprehensive Guide”

**Title: How to Apply for a HomeReady® Mortgage: A Comprehensive Guide**

**Introduction**

Finding the right mortgage to finance your home is one of the most important decisions you’ll make when buying a house. For those unable to commit to the standard 20% down payment, there are two notable mortgages available through government-sponsored enterprises Fannie Mae or Freddie Mac that make lower down payments possible: HomeReady and Home Possible.

In this article, we’ll walk you through the benefits of a HomeReady loan, explore the requirements, and explain all the steps you’ll need to apply for this type of mortgage.

**What Is Fannie Mae’s HomeReady Program?**

A HomeReady mortgage is a loan program that helps home buyers save on the cost of buying a house. This program offers adjustable underwriting guidelines with some flexibility around the loan terms depending on your situation. Some flexibility it permits is for borrowers to only need a 3% – 5% down payment or pay less on their closing costs.

Fannie Mae created HomeReady to provide an alternative to a Federal Housing Administration (FHA) loan. You should know that it’s similar to Freddie Mac’s Home Possible program, but the two aren’t the same.

**HomeReady Vs. Home Possible**

HomeReady and Home Possible are both great mortgage options geared toward lower-income, lower-credit score borrowers looking to build wealth through homeownership. Let’s briefly discuss the main differences between the two loan programs through Fannie Mae and Freddie Mac.

**HomeReady**

HomeReady mortgages are home loans financed through the Federal National Mortgage Association (Fannie Mae). A HomeReady loan helps borrowers with low to moderate income buy or refinance a home by reducing the standard down payment and mortgage insurance requirements.

**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.

**Cost Assistance From O1ne Mortgage®**

It’s no secret that home prices have been elevated the last several years and rates have also pushed upward. It can be a challenging environment for home buyers. We understand this and want to offer you a helping hand along your home buying journey. Those who qualify for HomeReady® have a couple of options available to them:

**Welcome Home RateBreak** is a lender-funded 2-1 temporary buydown of your interest rate. For the first year of your term, the interest rate is 2% below the regular rate associated with your loan. During the second year, your loan is 1% below the note rate before adjusting to the permanent rate in the third year.

Here’s what that looks like for a 30-year term with a $250,000 loan amount at a note rate of 7%:

| Year | Effective Rate | Payment | Annual Savings |
|——|—————-|———|—————-|
| 1 | 5% | $1,342 | $3,852 |
| 2 | 6% | $1,499 | $1,968 |
| 3-30 | 7% | $1,663 | N/A |

If you would rather have help with upfront costs associated with the loan, you can opt for a loan level price adjustment (LLPA) credit of 1% of the loan amount up to $3,500. If the loan is below $200,000, the credit will be $2,000. If you make up to 50% of the median income where you’re looking to buy, the maximum grant is $2,500.

**What Are The Other Benefits Of The HomeReady Program?**

HomeReady can offer lower down payment 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.

– **Low Credit Score Acceptance**: You may be able to use alternative credit history, including rent and utility payments, to help you qualify.
– **Gift Acceptance**: HomeReady loans allow you to accept gifts toward your down payment.
– **Mortgage Insurance Cancellation**: You can cancel your mortgage insurance once you’ve paid down 20% of your home’s value.
– **Refinancing Option**: You can use a HomeReady loan to refinance your current home loan, but you can’t take cash out of your equity.

**Who Qualifies For A HomeReady Loan?**

You’ll need to meet certain criteria to qualify for either of these programs. Here are the three major requirements:

1. **Qualifying Credit Score**: HomeReady loans require a minimum score of 620.
2. **No Additional Residences**: You must not own any additional residences in the country.
3. **Homeownership Education Courses**: You must attend homeownership education courses.

**What Are The HomeReady Loan’s Income Limits?**

Not everyone who meets the above requirements can qualify for a HomeReady loan. There are also some income eligibility 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.

You may not have to worry about HomeReady 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 You Need To Put Down On A HomeReady Mortgage?**

The low down payment requirements are the main reason you may be attracted to a HomeReady mortgage. These loans allow you to fund up to 97% of a single-family home. That means you must make a down payment of just 3% of the home’s value.

HomeReady 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 Mortgages Available For All Homes?**

HomeReady can be applied to 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 HomeReady 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 and the Freddie Mac site about the full requirements and types of homes that qualify for the HomeReady and Home Possible loans.

**How To Apply For A HomeReady Loan**

Do you think HomeReady 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 what to expect.

1. **Review And Compare The Loan Benefits**: Look at the terms before you choose a loan. Be sure you’ve reviewed all of the benefits of HomeReady loans carefully. These mortgages have higher interest rates than other conventional loans because of their lenient down payment policy.

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.

3. **Find A Mortgage Lender**: HomeReady loans are offered through private lenders, but you’ll need to find an outside lender to apply through (you can’t apply directly with Fannie Mae). Most conventional lenders offer these mortgages, so you’ll have plenty of local, national, and online lenders to sort through. These programs are available through O1ne Mortgage®.

4. **Apply For A Loan**: Once you choose a lender, you’re ready to apply for a loan. 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. O1ne 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.

**FHA Loans: An Alternative To A HomeReady 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 with a 620 or better. This gives you the flexibility of a higher home buying budget.

**FHA Loans Vs. HomeReady Vs. 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 federal government backs the FHA loan, 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 Fannie’s and Freddie’s purchasing standards.

**The Bottom Line: HomeReady Loans Allow Low Down Payments**

Fannie Mae’s HomeReady 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.

See what you qualify for today with O1ne Mortgage and explore your loan options for either of these programs. You may also be able to take advantage of our temporary buydown or upfront grant offers. Don’t let saving for a down payment delay the purchase of your dream house!

**Keywords**: HomeReady mortgage, Fannie Mae, low down payment, mortgage insurance, O1ne Mortgage, home loan, mortgage application, low-income home buyers, mortgage benefits, FHA loans, Home Possible, mortgage lender, homeownership education, mortgage approval, refinancing, mortgage rates, down payment assistance.