Down Payment for a home is generally believed to be the biggest obstacle facing first time home buyers in NC. About 11% of conventional mortgages written in the 2nd quarter of 2017 had an LTV above 95%, which is double the same period just 1 year earlier. Couple that with the fact that the HomeReady and Home Possible Advantage loan programs allow for a 3% down payment, and I think you will see one reason why they have become so popular.
We use the Fannie Mae HomeReady program with NC Housing Finance Agency’s down payment assistance program. This program will provide the 3% needed for the down payment, and requires us to have a credit score of at least 640. NC Housing also offers funds in every county of NC for $8000 in down payment assistance. The PMI rates for these loans are also much lower.
HomeReady and Home Possible Advantage
- Did you know that HomeReady and Home Possible are not limited to first time home buyers?
- Did you know that the income limit for Home Possible is higher in North Carolina disaster areas until October of 2019?
- Did you know that refinances may be allowed up to a 97% LTV?
- Did you know that the pricing – interest rate and PMI – is lower for both HomeReady and Home Possible?
The minimum credit score for the 3% down payment program is 620 however, it is difficult (in real life) to make loans with low credit scores work unless there are some cash reserves left after closing. The maximum debt to income ratio for these loans is listed as 50%, however (again real life here) we are not seeing many loans get approval with ratios over 45% DTI.
Advantages of HomeReady over Home Possible Advantage
There are two advantages of the Fannie Mae HomeReady program that makes it the program of choice right now. Most Millennials, in years past, would qualify for their first house with a FHA Loan, but that’s not the case right now. Most of the first time home buyers we talk to have student loan debt. Fannie Mae’s HomeReady program will allow us to qualify you on an Income Based Repayment Plan (IBR), even if the payment is zero.
FHA and USDA Home Loans require us to use 1% of the outstanding balance, if your student loans are in a variable payment repayment plan (IBR). Freddie Mac’s Home Possible Advantage requires us to count .5% of the outstanding student loan balance against you if the loan is not in a level payment installment agreement.
As mentioned, the other advantage to the HomeReady program in North Carolina is that we can use this program with the NC Housing Finance Agency’s Down Payment Assistance Programs. The interest rates on these programs are set by the NCHFA, and are not available from all mortgage companies or Banks in NC. The interest rates for these loans are higher than the rates we can quote if you are providing the 3% down payment from your own savings, or from a gift.
You apply for the down payment assistance at the time you apply for the mortgage. Many people contact us and want to know if we can just do the down payment assistance, while they pursue a mortgage somewhere else. The answer to that is no, you get the mortgage and the down payment assistance together. (We would love to help! Call us at 919 649 5058). Quicken doesn’t offer these programs.
There are income limits based upon the county you want to buy a home in for the down payment assistance loans (sometimes called Mortgage Grants since there are no monthly payments and there are terms that make them forgivable). The income limits for the 3% program is based solely on the applicants income. If you are married (for instance) and your spouses income would put you over the limit, we would not put them on the application. For the $8000 program, we count the income based upon HOUSEHOLD income, meaning anyone who is over 18 years old living in the home will be considered towards the income limit, even if they are not on the loan.
Advantages of Home Possible Advantage over HomeReady
Weather you are applying for the down payment assistance program or not, there are income limits for HomeReady and Home Possible Advantage. These income limits vary street to street, so we have to look at the limit for the address you are interested in.
In North Carolina, we had Hurricane Matthew several years ago, as a result, some parts of our state are still considered disaster areas until October of 2019. Within those disaster areas, there are generally no income limits for Freddie Mac’s Home Possible Advantage Loan. This affects about one-third of our state!
Why is that a big deal? If you are a home buyer putting even 10% down, this might be the best program for you. There’s no requirement that you have a 97% loan with the Home Possible Advantage program. Because the mortgage interest rates are lower for this program, and the PMI rates are lower for the program, the savings can be tremendous!
If you have questions about HomeReady and Home Possible Advantage, and what your mortgage options might be, call Steve and Eleanor Thorne 919 649 5058. Mortgage approval with deferred student loans or short-term debt, right now, can be like working a really really hard Sudoku puzzle – it takes someone who REALLY knows Program Requirements to be able to look at your overall debt to income ratio and find the right program for you. We want to help you get the numbers to work.
I try and answer all questions :)