HomeReady mortgages are conventional loans backed by Fannie Mae that support low‑income borrowers with good credit in buying or refinancing a home. This program offers more flexibility than standard mortgages, including lower down payments, reduced private mortgage insurance (PMI), and broader guidelines for qualifying income.
Program Overview
Fannie Mae’s HomeReady program is available to first‑time and repeat homebuyers and individuals looking to refinance an existing loan. When looking to qualify, your income must not exceed 80% of the area median income (AMI).
One of HomeReady’s key advantages is the low down payment requirement—just 3%. That’s significantly lower than the typical 5–20% down payment many conventional loans require. You also need a credit score of at least 620 to apply. However, a score of 680 or higher helps you qualify for better rates and may eliminate specific rate adjustments.
First‑time homebuyers must complete an online homeownership education course. This course takes 4 to 6 hours, costs $75, and teaches the essentials of purchasing and managing a home.
Eligibility Requirements
To be eligible for a HomeReady mortgage, you must meet the following criteria:
- Make a minimum 3% down payment
- Have a credit score of 620 or higher (680+ preferred for optimal rates)
- Earn 80% or less of the area’s median income
- Maintain a debt-to-income (DTI) ratio of 45% or less (can go up to 50% in some instances)
- Use the loan for a primary residence (owning another financed property is allowed)
- First-time buyers must complete the homebuyer education course before closing
Key Benefits of HomeReady Mortgages
1. Available to More Than First‑Time Buyers
Unlike some assistance programs that only support first‑time buyers, HomeReady welcomes new and returning homeowners.
2. Flexible Income Guidelines
HomeReady stands out for its income flexibility. Most conventional loans focus solely on the borrower’s income. In contrast, HomeReady allows a wide range of income sources:
- Employment Income: Wages, bonuses, commissions, or tips
- Household Income: Income from other people living in the home, even if they’re not on the loan
- Co‑signer Income: From non‑occupant co‑borrowers, like a parent helping qualify
- Boarder Income: Rent received from a roommate who has lived in the home for at least 12 months
- Accessory Unit Income: Rental income from basement apartments or “mother‑in‑law” suites
Income flexibility makes HomeReady particularly helpful for multigenerational households or buyers with non‑traditional income streams.
3. Flexible Down Payment Sources
While conventional loans often require that part of your down payment come from your funds, HomeReady allows 100% of the down payment to come from:
- Personal savings
- Gifts
- Grants
- Family or friend contributions
Allowing a variety of options helps lower the barrier to entry for buyers who have help from others but lack considerable savings of their own.
4. Low Private Mortgage Insurance (PMI)
If you put down less than 20%, you’ll need PMI. However, HomeReady keeps PMI costs lower than traditional loans—especially when the loan-to-value (LTV) ratio falls between 90% and 97%.
You can cancel PMI once your LTV drops below 80%, helping reduce long-term monthly costs.
HomeReady vs. Home Possible Loans
HomeReady and Freddie Mac’s Home Possible loans are designed for low‑ to moderate‑income homebuyers. They share several features:
- 3% down payment requirement
- Income limits based on AMI
- Acceptance of gift funds and grants for down payments and closing costs
- Flexibility in income documentation
However, the key differences include:
- Credit Score Requirements: Home Possible loans generally require a minimum credit score of 660, while HomeReady accepts scores as low as 620
- Program Sponsors: Fannie Mae backs HomeReady; Freddie Mac sponsors Home Possible
If your credit score is below 660, HomeReady may be a more accessible option.
Takeaway
HomeReady mortgages provide a solid, flexible path to homeownership for low‑income borrowers who meet the eligibility criteria. Backed by Fannie Mae, the program offers significant advantages: low down payments, reduced mortgage insurance, and broad income qualifications.
Whether buying your first home or returning to the housing market, HomeReady helps make homeownership more attainable—without the stricter requirements of many conventional loans. This program may be ideal if you have steady credit and need little flexibility.