Fannie Mae’s HomeReady Mortgage is its enhanced affordable lending product. It is set to replace the MyCommunityMortgage (MCM) product, launched back in 2001. Some of MCM’s eligibility and underwriting flexibilities have been transitioned into standard policy over time. Fannie Mae has recognized the continuing need to provide more access to credit for creditworthy borrowers, and has developed new or revised loan and borrower eligibility requirements and underwriting flexibilities aimed at low to moderate-income borrowers and buyers in its new HomeReady Mortgage product. It is intended to help lenders, nonprofit organizations, housing finance agencies, and other affordable housing advocates serve today’s market and support sustainable homeownership.
The following list highlights some of the major policy changes that have been incorporated into the HomeReady Mortgage program:
- Income limits – General income limit of 80% of area median income (AMI) to align with Fannie Mae’s housing goals. Eligibility is also provided for properties located in low-income census tracts with no borrower income limits, and up to 100% of AMI for properties located in high minority census tracts or designated disaster areas.
- First-time home buyer – The requirement that at least one borrower must be a first time home buyer has been removed for one-unit principal residence loans with LTV ratios greater than 95% up to 97%.
- Non-occupant co-borrowers – Now permitted for qualifying purposes.
- Rental income – Rental income from an accessory unit may be considered in qualifying the borrower.
- Manufactured housing – One-unit manufactured home properties will be permitted as an eligible property type for principal residence transactions. The maximum LTV and CLTV ratios for manufactured housing apply.
- Renovation – HomeStyle Renovation mortgages will be permitted for principal residence transactions. The maximum LTV and CLTV ratios for HomeStyle Renovation apply.
Income Flexibilities: Accessory Unit Income and Boarder Income
Fannie Mae’s HomeReady loan program, introduced at the end of last year as their enhanced affordable lending product aimed at low to moderate income borrowers, is now accepting, with proper documentation, earnings from accessory units and boarders as a part of qualifying income.
Scenario #1: Accessory Unit Income
- An accessory unit is a separate dwelling (as identified by the appraisal) with a kitchen and bathroom
- Income generated from an accessory unit can be considered as rental income under HomeReady in accordance with standard rental income guidelines
An accessory unit is a separate dwelling independent of the primary dwelling unit that must be identified by the appraisal report. It includes a fully functioning kitchen and bathroom. Income generated from an accessory unit can be considered as rental income under HomeReady in accordance with the standard rental income guidelines.
Scenario #2: Boarder Income
- Up to 30% of qualifying income can come from boarder income
- Borrower must provide documentation for at least 9 of the most recent 12 months (averaged over 12 months) and documentation of shared residency for the past 12 months
The rental payments a borrower receives from one or more individuals who reside with the borrower may be considered as acceptable qualifying income as well. This applies for a one-unit property. 30% of the total gross income used to qualify the borrower for the mortgage may be from boarder revenue if: the individual(s) has lived with and paid rent to the borrower for the last 12 months, the boarder can provide appropriate documentation to demonstrate a history of shared residency (a copy of an official document(s) showing the boarder’s address as being the same as the borrower’s), and documentation of rental income for at least 9 of the most recent 12 months (averaged over 12 months).