fha loan

Home Ready Qualifying Requirements

posted in: Mortgages

In a previous blog, I announced that 7th Level Mortgage is accepting applications for the FNMA program called Home Ready. The purpose of this blog is to outline the application process in very simple terms and how to qualify for the program. The loan officers, processors, and management staff at 7th Level are ready to assist you through the entire process, so you can close quickly and move into your new home.

The criteria for applying and qualifying for  the program are outlined below:

Limited Cash For Down Payment: With as little as 3% down you may qualify for the program. As with all mortgages, any monies that are used for the down payment must be verified as to their source. They must come from a bank account, however, this program has the flexibility built into it to accept other sources for the down payment including gifts, grants, Community Seconds, and, of course, cash on hand. There is no minimum requirement from your funds. A Community Second is a subordinate mortgage that provides the necessary down payment monies needed to meet the 3% down requirement.

Loan to Value Limits: The maximum LTV for this program is 97%.

Adjustable-rate Mortgages: Although adjustable-rate mortgages are allowed under the program, with fixed-rate mortgages still at historic lows, I recommend applying for a fixed-rate loan before applying for an ARM, unless, you are planning on refinancing or moving to another home in the near term. The ARMs that are allowed are a 5/1 with caps of 2/2/5 only, and 7/1 and 10/1 according to Fannie Mae’s standard ARM matrix. You must understand that for qualifying, your income must support the loan at the fully indexed rate.

Loan Limits: In 2021, Fannie Mae announced higher loan limits for 2022. These limits are adjusted annually. You can either go online for the limits or ask your loan officer at 7th Level Mortgage what those limits are.

Counseling: Homeownership counseling is not optional. It is mandated by Fannie Mae and the course is provided by an outside, third-party provider who has been approved by HUD via the Housing Partnership Network. You will expect to spend an average of four to six hours of your time. The cost for the course is $75 (paid to Framework) so you can learn all the fundamentals of homeownership, your responsibilities when buying and owning a home. After taking the course, you will take an online test and receive a completion of completion.

Rate and Price Adjustments: The Home Ready program has a minimum FICO score of 620. If you are putting down more than 20% of the agreed-to price and your FICO score is greater than 680, the lender can offer you an even better rate and fees. The rate is not set by Fannie Mae, it is up to you to consult with your loan officer to go over what the possibilities are regarding rates and fees.

Mortgage Insurance: Unlike the FHA loan program, the MI is cancellable. Additionally, the cost for the MI is less expensive than FHA’s program.

Debt to Income Ratio: A non-borrower household member’s income can be used as a compensating factor when determining your debt to income ratios. In some cases, debt to income ratio of up to 50% can be considered with the compensating factor. It also allows for a parent to also function as a non-occupant borrower. Keep in mind that the income you are using cannot exceed 80% of the median income for the area based on the census tract.

In this rising interest rate environment and with many folks buying their first home, there is no reason to hold off on entering into reaching the agreement with the seller to purchase your first home. This is an excellent opportunity for young people just starting after college,  newly married people, or those with growing families. 7th Level Mortgage is the lender to call to obtain all the information you need. They will take the application, order the appraisal and title on the home for you and get you to closing quickly. Make the call…TODAY!