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
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).
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)
New York City
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.
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.
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
- 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.
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.