When looking into buying your home it is always good to know what options you as a borrower have at your disposal. Today we take a few minutes to dig into the under used but extremely beneficial HomeReady and Home Possible loan programs.
Let's answer the first question "what is HomeReady and Home Possible?" These two programs fall under the conventional loan bucket. HomeReady is a Fannie Mae underwritten loan and Home Possible is a Freddie Mac underwritten loan. What does that mean to you? not much outside of your loan officer will help identify which option is better for you. We will weed the two out below.
Let's dig into HomeReady first. HomeReady as I mentioned before is a loan program under Fannie Mae, this is a conventional loan option that reaps all of the conventional underwriting benefits that most borrowers and lenders love. HomeReady allows you the borrower to get in to your home for as little as 3% down! This program also offers a few other benefits to you as a borrower, the most important one and what I think makes the program so advantageous is a reduced mortgage insurance factor. In simple terms this means to you the borrower that if you have mortgage insurance (MI) on your loan you are going to have a cheaper MI payment. This is great for you the borrower for a few reasons:
- A lower MI payment means a lower overall payment.
- A lower overall payment means a better chance for your approval.
- A lower payment, and a lower DTI allows for you to buy more home!
Now I know you are probably thinking if I am going to get all these benefits there must be a catch, and guess what you are right on! HomeReady does require that you qualify based off of what they call an AREA MEDIAN INCOME (AMI) Fannie has essentially put together income limits all across the country, and basically have put it simply if your qualifying income is below the AMI for where you live you can do the loan, if not you cannot do the loan. Pretty simple if you ask me! So how do you know your AMI? Fannie has put together a nice little tool where you type in the address, or search the area you are looking to live and poof your AMI is given to you. Check the link below to search your area. (Keep in mind you are allowed to go up to the program specific AMI, which the tool will indicate for you.)
A little tip that most people miss on this loan offering is this program uses QUALIFYING income. This is an important term to understand, qualifying means what income you actually need to make the loan work based off of your Debt to Income (DTI).
Quick example - You live in an area where the AMI is $61,0000, you make $75,000 a year, $50,000 of that income is a salary, and the other $25,000 is bonus. Now you the borrower only needs to use your $50,000 to qualify because the rest of your Debt to Income is in line you now qualify for that program. On the flip side if you needed every bit of that $75,000 to make the loan work you cannot use this program. Make sure when you are shopping for your loan you ask these questions of your loan officer, it can save you in the long run.
Let's fly through Home Possible. I will make this easy for everyone reading along here (all 3 of you!) These two programs have very similar rules and structures. Basically take all of the information above and apply it to the Home Possible program. Now these two are not exactly the same for once Home Possible is a Freddie Mac program instead of Fannie Mae, and Home Possible can possibly have a different Area Median Income allowance. Check the link below to search your area. (Keep in mind you are allowed to go up to the program specific AMI, which the tool will indicate for you.)
Always make sure before you hop in to the first loan you are offered or something you find online you take the time to ask questions about what loan works best for you. Remember this is one of the biggest financial decisions of your life, why not take a little bit more time to make sure you get in the best situation for yourself and save a little money in the long run!