HomeReady and Home Possible

TAGS: HomebuyingHomeownershipMortgage Approval & Eligibility
HomeReady and Home Possible
Article Excerpt

The HomeReady and Home Possible programs have helped people throughout Texas achieve the dream of homeownership. Learn more about how they can help you.

Two programs in particular - HomeReady and Home Possible - have helped many people achieve the dream of homeownership. They even feature advantages over the ever-popular FHA program (also known as the “first-time homebuyer program”).

Read on to learn more about how these programs could help you buy a home.

Freddie Mac and Fannie Mae Home Ready and Home Possible Programs

What are the HomeReady and Home Possible programs?

HomeReady and Home Possible provide assistance to qualifying low- and middle-income homebuyers with limited ability to make a down payment.

  • HomeReady is a program of the Federal National Mortgage Association, known more commonly as “Fannie Mae.”

  • The Federal Home Loan Mortgage Corporation, also known as “Freddie Mac,” oversees the Home Possible program.

The main role of both Fannie Mae and Freddie Mac is to promote an active market for real estate. They do this by buying mortgage loans from lenders and selling them to investors on a secondary mortgage market. This provides lenders with cash so that they can lend more money to home buyers. Their roles have expanded over the years to include homebuying assistance.

» READ MORE: What are Fannie Mae & Freddie Mac?

Home Ready vs Home Possible: how are they different?

A close look at each program’s benefits reveals unique features.

For example, Home Possible allows you to source your down payment in different ways. A homebuyer can use their own “sweat equity” — the value of improvements or repairs to the property made by the buyer at the buyer’s own expense — as part of the down payment. However, the Home Possible minimum credit score is a bit higher.

The requirements for qualifying for each program are also different. This includes factors like credit score, income, and debt-to-income ratio. Some borrowers may find it easier to qualify for one over the other.

Let’s take a closer look.

Eligibility Requirements for Home Ready & Home Possible Loans

Qualifying for either program depends on a wide range of factors, and can vary based on geographic locations and other issues. These requirements are subject to change over time.

Generally speaking, requirements include:

  • Eligible property types: 1-4 unit properties are eligible for purchase.

  • Credit score: Minimum 620 for HomeReady; 660 for Home Possible.

  • Maximum debt-to-income ratio: 50% for HomeReady; 43% for Home Possible.

Down payment requirement

Coming up with enough money for a down payment can be difficult. That’s where Home Ready and Home Possible come in.

With Home Ready: a down payment could be as little as 3% of the total purchase price for a single-family residence. These programs also expand the acceptable sources of funding for down payments: gifts, grants, and Community Seconds with no personal funds required.

» READ MORE: All About Giving & Receiving Mortgage Gift Funds

Income requirements

What are the maximum income limits for the Home Ready and Home Possible programs?

  • Home Ready and Home Possible income limits: 80% median income. Search your local income limit with Fannie Mae’s Area Median Income Lookup tool.

What counts as eligible income when qualifying?

Along with normal wages, HomeReady and Home Possible loans also allow borrowers to include boarding income and other income sources in a mortgage application. They allow the inclusion of “non-occupant borrowers” and “non-borrower household members” on a loan.

Many loan programs will only consider certain forms of income, such as wages or salary - not rental (or “boarder”) income.

» READ MORE: Examples of Eligible Boarder Income

Do HomeReady and Home Possible have any special rules after closing?

Under both the HomeReady and Home Possible programs, the borrower must occupy the property as their residence. But they can rent out part of the property, including renting a room of a single-family residence to a boarder.

Neither program is limited to first-time homebuyers. An individual can use these programs multiple times as long as they meet the qualifications. The loans are not subject to any geographic restrictions. Borrowers do not have to pay a prepayment penalty if they pay off a mortgage under either program early.

Learn more about your options

Financing a new home can seem complicated. But an experienced mortgage advisor will jump all the hurdles for you.

The Wood Group of Fairway will help you understand your best loan options. Get started on your free pre-approval today to find out why so many homebuyers trust us as their lender for life.