What Is a HomeReady Loan?

Written by Steven PorrelloSeptember 14th, 20227 minute read

HomeReady eligibility | HomeReady loan guidelines | How to apply | Compare mortgage programs | Summary | FAQs

A HomeReady loan is a mortgage designed for low- to moderate-income buyers who are responsible and creditworthy but don’t have enough cash for a down payment on a conventional mortgage.

HomeReady loans are extremely flexible, and you can secure funding for numerous types of properties if you:

  • Can make a down payment of 3%
  • Have a debt-to-income ratio (DTI) of 50%
  • Have a credit score of at least 660

Fannie Mae is also flexible on how you get your down payment: it can be a gift, a donation, or a grant, with no minimum contribution from you. You can also put down a co-borrower’s income (like a parent) on your application to help you qualify, as well as “boarder income” from a roommate.

At a glance: HomeReady income limits and eligibility (2022)

  • Income limits: below 80% of your area median income. Find out if your income is eligible using Fannie Mae’s AMI Lookup Tool.
  • Credit score: 620+
  • Down payment: as low as 3% of the purchase price
  • Education: first-time homeowners are required to take a $75 online course on home buying (average of 4–6 hours to complete)
  • Occupancy: you must be buying your primary residence — not an investment or house-flipping project

» Learn more about HomeReady loan guidelines and eligibility.

Who should use a HomeReady loan?

A HomeReady loan is ideal for low- to moderate-income home buyers who have good credit scores, moderate debt-to-income levels, and don’t qualify for other low down payment mortgage programs (such as from U.S. Federal Housing Administration, Department of Agriculture, or Veterans Affairs).

What is an FHA loan? A low down payment mortgage geared toward low- to moderate-earning home buyers

How is it different from a HomeReady loan? HomePath allows you to receive your down payment from flexible sources (gifts, grants, donations), whereas FHA requires a gift letter for these to be eligible.

What is a VA loan? A zero-down payment mortgage available to U.S. service members, veterans, and surviving spouses

How is it different from a HomeReady loan? To be eligible for a VA loan, you must meet one of following service time requirements:

  • 90 days for active duty during wartime
  • 181 days for active duty during peacetime
  • 2 years for regular service members
  • 6 years for reservists and National Guard members

What is a USDA loan? A zero-down payment mortgage designed to help rural home buyers

How is it different from a HomeReady loan? To be eligible for a USDA loan, you must buy property in certain approved rural areas. The house must also meet certain HUD property standards, whereas you can buy any kind of property with a HomePath loan (including foreclosures).

A USDA loan also has a “guarantee fee,” which is similar to private mortgage insurance, except that you’ll pay the monthly fee (around 0.35% of your loan) for the entire life of your loan.

What is a Home Possible loan? A low down payment mortgage geared toward low- to moderate-earning home buyers

How is it different from a HomeReady loan? Both loan programs allow you to count roommate income in your loan application, but only Fannie Mae allows you to add non-borrower income into the mix.

HomeReady loan guidelines and eligibility: In-depth breakdown

HomeReady income limits

Income limits is the maximum income you can earn to be eligible for a HomeReady loan. In most geographic locations, you can earn no more than 80% of your area median income (AMI) to be eligible. Certain low-income areas have no income limits.

For instance, if your AMI is $100,000, you may have to earn a gross amount less than $80,000 annually to get approved.

Here’s the AMI for 15 popular U.S. markets, along with their income limits.

Area median income (AMI)
Income limits (80% of AMI)
Los Angeles
New York City
San Antonio
San Diego
Source: Fannie Mae, Area Median Income

Debt-to-income ratio requirements

Your debt-to-income ratio (DTI) measures how much debt you owe versus how much income you’re earning each month. As long as your DTI is below 50%, you qualify for HomeReady.

To calculate it, divide the sum of your monthly debt payments (including your future mortgage payment) by your gross monthly income (your income before taxes). Multiply this by 100 and you’ll get your DTI percentage.

For instance, let’s say your household brings in $4,600 per month and your debt payments are the following:

  • Car loan: $500
  • Student loan: $300
  • Credit card: $150
  • Future mortgage payment: $1,300

Together, your debts total $2,250, which equals a 48.9% DTI. In this scenario, you would be eligible for a HomeReady loan.

More flexibility for approved income sources

HomeReady allows you to put down numerous nontraditional sources of income to help you lower your DTI. These sources include:

  • Co-signers — someone who signs the mortgage with you but doesn't plan on living in the house (e.g., a parent or guardian)
  • Roommate or boarder — someone who's already been living with you for the previous 12 months and plans to rent a space in your new house
  • Accessory dwelling units (ADUs, aka "mother-in-law suites") — a basement or attached unit that you plan to rent out

Credit score requirements

Fannie Mae sets the minimum FICO credit scores at 620. The higher your score, however, the more likely you’ll get a better mortgage rate.

Minimum down payment

The minimum down payment is 3% of the total home purchase.

More flexibility for down payment funding sources

For single-family homes, Fannie Mae doesn’t require a minimum down payment contribution from you. Your down payment can be fully composed of a gift from your parents, a donation from a charity, or even a grant from a down payment assistance program.

You can also use cash on hand as your down payment. That means you don’t have to open a bank account, deposit your money, and transfer it to your lender.

Interest rates

Although HomeReady loans are designed to help more home buyers qualify for a mortgage, some may have steeper interest rates. On average, interest rates can be 0.1–0.5% higher on HomeReady loans than conventional mortgages.

To get the lowest rate possible, compare HomeReady loans from different lenders, as each one might offer slightly different rates.

Mortgage insurance

Unlike other low-down payment mortgage programs, you don’t have to pay an upfront mortgage fee for a HomePath loan. You will likely have to pay private mortgage insurance (PMI), though its monthly cost is typically lower than a conventional loan. After you’ve paid 20% of the loan, your lender will cancel the PMI.

Eligible property types

  • Single-family homes
  • Condominiums
  • Co-ops
  • PUD homes (planned unit development)
  • manufactured homes
  • Multifamily homes (2–4 units)

HomeReady homeownership requirements

Only owner-occupants qualify for HomeReady loans — not investors, house flippers, or buyers looking for a second or vacation home. To be considered an owner-occupant, you must move into your home within 60 days of closing and live there for at least a year.

✍ Education requirement for first-time buyers

First-time home buyers must complete a homeowner counseling course called “Framework” before they can apply for HomeReady. This course costs $75 and takes roughly 4–6 hours to complete.

How much are closing costs on a HomeReady loan?

Closing costs are typically 2–5% of the loan amount. Many HomeReady home buyers can get assistance for closing costs through Fannie Mae’s HomePath program. To be eligible for closing cost assistance, you must meet the following requirements:

  • Be a first-time home buyer (that is, you haven’t owned property in the past three years)
  • Buy a HomePath property
  • Be an owner-occupant
  • Complete the homeowner counseling course

How to apply for a HomeReady loan

1. Be sure HomeReady is right for you

Before you apply, double-check the requirements for HomeReady and be sure your income limits, credit score, down payment, and DMI meet the criteria. You might also want to compare HomeReady with other low- or no-down payment mortgages (such as FHA, VA, and USDA) and to be sure this mortgage is right for you. You might get a better mortgage rate with another loan.

2. Find a HomeReady lender

Fannie Mae doesn’t underwrite HomePath mortgages. Rather, they offer them through private lenders. Many popular mortgage lenders and banks will offer these mortgages.

To find a lender near you who offers HomePath loans, you can search online, or ask your real estate agent to recommend a reputable lender.

🏠 If you're weighing your options for buying, our friends at Clever can help! Clever's fully licensed concierge team is standing by to answer your real estate questions, or help you find the right agent for your needs.

3. Apply

After you find a lender, they'll typically ask you to give proper documentation of all sources of income, as well as a copy of your most recent tax return. They’ll run a hard inquiry on your credit score, and they’ll likely need to see proof of a sufficient down payment.

Once they’ve checked your income and debt, they’ll give you a mortgage rate and tell you the maximum HomeReady mortgage they’ll extend to you.

Summary of Fannie Mae's Home Ready loans

  • A HomeReady loan is a mortgage designed for low- to moderate-income buyers.
  • HomeReady loans are extremely flexible if you can make a 3% down payment, have a max DTI of 50%, and have a credit score of 660+.
  • Fannie Mae is flexible on how you get your down payment: it can be a gift, a donation, or a grant, with no minimum contribution from you.

FAQs about HomeReady loans

To be eligible for a HomeReady loan, you must earn less than 80% of your area median income. For example, if you live in Cleveland, OH, where the area median income is $78,600, your total income cannot exceed $62,880.

When calculating your debt-to-income ratio, lenders will look at your household income, which includes all sources of income (including from a cosigner, boarder, or rental). However, when looking at your income limits, lenders will consider only you and your co-borrower’s income.

There is no max loan amount for the HomeReady program. As long as you meet the financial requirements (3% down payment, 660 credit score, income no greater than 80% of your area median income, and a DTI ratio of 50% or less), you can take out a loan for any home value.

The biggest difference between these two loans is the credit score requirement. HomeReady allows a minimum score of 620, while a Home Possible loan requires 660.