Enhancements Make HomeReady Available to More Homebuyers
By Jonathan Lawless | September 15, 2016
Fannie Mae launched HomeReady® mortgage last year to help low- to moderate-income borrowers who want to buy a home but find it difficult to save up a 10 to 20 percent down payment. With HomeReady, these borrowers can put as little as 3 percent down. And when underwriting the loan, the lender can consider “nontraditional” income – such as income from a rental unit.
Fannie Mae lenders have already used HomeReady to help thousands of families. But we knew we could do even better. So we asked our lenders for feedback. And what we learned was pretty simple.
Regulatory changes have complicated their business enough. They did not need or want any more complexity. And, some told us that HomeReady – especially income requirements differentiating allowable income by census tract (some as low as 80 percent of area median income, or AMI) – was too complicated.
It became our mission to win them over.
3 Ways We Have Simplified
We want HomeReady to be the one product lenders and real estate agents think of for their low- to moderate-income clients. We want lenders to consider it a powerful alternative to Federal Housing Administration loans; and to view it as a safe and sound, conventional option. We also want them to know it has an educational feature that better prepares their clients for sustainable homeownership.
We announced enhancements in July to make HomeReady simpler.
First, we raised income limits so that homebuyers with up to 100 percent of AMI are eligible in all areas, with low-income market tracts having no income limits at all. So now lenders can easily match HomeReady eligibility to the AMI for the city or area where they work.
Second, we simplified parts of the underwriting process – product nuances varying from our standard guidelines. Lenders said these were challenging, and we now have provided them with more certainty that a loan can be delivered to Fannie Mae.
Finally, we clarified our borrower education requirement because we think it’s an important product advantage. Our analysis shows that loans originated through state Housing Finance Agencies and those with down-payment assistance through Community Seconds® consistently perform better than loans with similar characteristics originated through other channels.
The answer is that these programs require homeownership education or counseling. This assistance helps buyers effectively understand and manage the risk, and enjoy the benefits of sustainable homeownership.
All HomeReady borrowers complete an online education course offered by Framework Homeownership.
Framework continues to get high marks from first-time and repeat homebuyers. It provides the essential knowledge to prepare borrowers for homeownership.
But we’ve recently added flexibility for more in-depth help for buyers still facing real barriers like weak credit and limited savings. We’ve expanded our guidelines to accommodate one-on-one counseling. Consumers who meet with advisors for customized consultation – involving a comprehensive review of goals, household budget, and credit – can now fulfill HomeReady’s educational requirement and be qualified with higher loan-to-value ratios. By undergoing counseling that includes a thorough review of their budget and credit, these borrowers can sustain that level of debt to income.
We think this change opens the doors to homeownership for borrowers who were unable to qualify in the past based on their debt-to-income ratio. They can complete one-on-one counseling, and move into homeownership when they are ready.
The counseling industry is very excited about this change, and happy to receive recognition for the great work they do.
Getting the Word Out
Fannie Mae’s account teams work directly with lenders to help them understand HomeReady and its benefits. Additionally, we offer lenders and real estate agents support through our:
- Online Marketing Center, where you can customize and download free materials to meet your business needs.
- Regular live webinars about our products (visit our training page for information and schedules).
- Product materials on our business website to help you get customers into a home.
Framework also offers coupons for its course that lenders and real estate agents can use as client perks.
Changing the Market
HomeReady will continue to evolve.
We’re trying to think of the specific needs of buyers and make sure that HomeReady has features that work well for them. We’re also aware that a lot of people who lost equity during the housing crisis may be returning to the market. We’ll keep monitoring these trends and keep asking for feedback from all parties.
We want to offer the best choice for preparing all buyers for sustainable, affordable homeownership.
Jonathan Lawless is Fannie Mae’s vice president of product development and affordable housing.
(Editor’s note: This article originally appeared in The Home Story, also a Fannie Mae website.)