B5-6-01, HomeReady Mortgage Loan and Borrower Eligibility (06/05/2024)

The HomeReady mortgage is a conventional community lending mortgage that offers underwriting flexibilities to qualified borrowers who meet specific income criteria. The HomeReady mortgage is a standard product offering available to all Fannie Mae lenders. No special approvals are required.

A HomeReady mortgage is a first mortgage, purchase money, or limited cash-out refinance transaction for one- to four-unit properties used as the borrower’s principal residence.

Eligible properties include:

• one-unit properties, including manufactured housing, and units in condos and PUDs;

• units in co-ops, provided the unit conforms to Fannie Mae's requirements, and the lender has received specific authority to deliver mortgages on co-ops to Fannie Mae;

• existing structures and new construction; and

• two-, three-, and four-unit properties.

Additional restrictions apply to transactions with LTV, CLTV, or HCLTV ratios of 95.01 — 97%. See below for additional requirements for HomeReady mortgage transactions.

Refer to the Eligibility Matrix for maximum allowable LTV, CLTV, and HCLTV ratios for HomeReady mortgage loans. HomeReady loans that are originated in connection with manufactured homes must follow the more restrictive LTV, CLTV, and HCLTV ratios that apply. For example, the maximum LTV, CLTV, and HCLTV ratio for a one-unit HomeReady manufactured home that does not meet the MH Advantage requirements is 95%.

If the LTV, CLTV, or HCLTV ratio exceeds 95% for a HomeReady transaction, the following requirements apply.

Subordinate financing must comply with:

• the terms for the Community Seconds option, which allow, among other provisions, a maximum combined loan-to-value of 105% (see B5-5.1-01, Community Seconds LoansB5-5.1-01, Community Seconds Loans through B5-5.1-03, Community Seconds: Shared Appreciation TransactionsB5-5.1-03, Community Seconds: Shared Appreciation Transactions); or

• subordinate financing permitted in accordance with  B2-1.2-04, Subordinate FinancingB2-1.2-04, Subordinate Financing.

Subordinate financing from a seller-held mortgage is not permitted with HomeReady mortgages.

HomeReady mortgage transactions can be secured by fixed-rate or ARM loans.

The following table identifies the ARM plans that are available for HomeReady mortgage loans.

The following requirements apply to temporary interest rate buydowns on HomeReady mortgages:

• Loans must be purchase transactions.

• Loans must be fixed-rate or seven- or ten-year ARMs.

• All other standard buydown policies apply.

See  B2-1.4-04, Temporary Interest Rate BuydownsB2-1.4-04, Temporary Interest Rate Buydowns, for additional information.

In determining whether a mortgage is eligible under the borrower income limits, the lender must count the income from all borrowers who will sign the note, to the extent that the income is considered in evaluating creditworthiness for the loan.

The lender must use the same methodology in determining income eligibility for a HomeReady mortgage as the lender uses in reporting “Monthly Income” in data delivery. Eligibility for a HomeReady mortgage loan compares the borrower’s income to the applicable area median income (AMI) for the property’s location. For determining Fannie Mae loan eligibility, lenders must refer to the AMIs that Fannie Mae uses in Desktop Underwriter or on Fannie Mae’s website and may not rely on other published versions (such as AMIs posted on huduser.org).

To be eligible as a HomeReady mortgage, the total annual qualifying income may not exceed 80% of the AMI for the property’s location. If the property has resale restrictions, see B5-5.2-02, Loans with Resale Restrictions: Eligibility, Collateral and Delivery RequirementsB5-5.2-02, Loans with Resale Restrictions: Eligibility, Collateral and Delivery Requirements, for additional requirements.

Note: For loan casefiles that are not underwritten as a HomeReady mortgage loan, DU will issue a message indicating that the loan may be eligible as a HomeReady loan if the total qualifying income entered in DU appears to be within the applicable AMI limit for the property’s location. See  B5-6-02, HomeReady Mortgage Underwriting Methods and RequirementsB5-6-02, HomeReady Mortgage Underwriting Methods and Requirements, for additional information.

Homeownership education is required for HomeReady purchase loans when all occupying borrowers are first-time homebuyers. Borrowers who complete housing counseling within 12 months prior to loan closing may be eligible for a loan-level price adjustment credit. Refer to B2-2-06, Homeownership Education and Housing CounselingB2-2-06, Homeownership Education and Housing Counseling, for options for meeting these requirements.