The New Fannie Mae Home Ready Program is Awesome!

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Fannie Mae has a new program out and it is a homerun!  Granted, it may not fit everyone, as there are potential income limits depending on where the property is located. But for those folks that fit within the income limit and are looking to put minimal down (program goes up to 97% loan to value), it could be perfect for them.
Here are the highlights:

  • Pricing – when the credit score is 680+, there are no pricing bumps (so someone borrowing 97% with a 680 credit score could in effect get the same rate as someone with a 760 score putting 20% or more down).  Today the rate would be 3.625% for a 30 year fixed with no points, as an example.
  • Mortgage insurance – the coverage for this product is 30 basis points lower than a typical 97% loan to value (for those with a 680+ credit score, the MI is cheaper than FHA on a monthly basis and has no up-front MI like FHA does).  The monthly mortgage insurance is cancelable when the proper loan to value has been reached after paying it for two years (so just like any other conventional loan) – unlike the MI for an FHA loan that is permanent.
  • Down Payment – Only 3% is required and it can be a gift.  There is no minimum investment from the borrower required.
  • Seller contributions are allowed for closing costs and prepaids.
  • Income limits – depending on the location of the property, there will likely be income limits.  It is completely driven by the census tract of the property being purchased, so each property has to be looked up individually.  For properties falling within a designated census tract, there is no income limit (you’d be surprised – there are more in Nashville than you think, particularly in areas like the Nations that are up and coming). If the property is not in a designated census tract, the income limit is 80% AMI (average median income) which for most of our area will be $53,520 annually.
  • Property must be a single family residence for the buyer to be eligible for 97% financing.
  • The buyer does NOT have to be a first time homebuyer.  But they can’t own any other property at the time of closing.
  • Condominiums follow standard Fannie guidelines for approval (so doesn’t have to be on FHA list for qualification).

Here is a good comparison for someone with a 720 credit score buying a home priced at $200,000 comparing FHA to Home Ready:

Down payment:  FHA - $7,000Home Ready - $6,000
Payment (P&I and MI):  FHA - $993.75Home Ready - $997.91
The loan amount is less on Home Ready versus FHA ($194,000 versus $196,377 due to FHA’s up-front MI premium) thus less to pay off when time to sell.  And if the buyer keeps the property long term, he/she has the opportunity to get out of the monthly MI and lower the payment (in this case by $113 per month).
Granted, FHA is still a great program and is a super option for our buyers – particularly with credit scores between 620 and 680 or when income exceeds the Home Ready limit.  But for those that fit the income limit (or house in designated census tract), have good credit and want an option with minimal down, Home Ready is definitely worth a look.