The New HomeReady™ Conventional Mortgage in NC offers some exciting options for NC Home Buyers. It really is one of the first Innovative Mortgage Programs we’ve seen designed since the Great Recession. The program is thankfully vetted and is low risk for Lenders and Home Owners. The best news is that it offers unique features that will be very helping for the First Time Home Buyer.
Fannie Mae’s HomeReady™ Program is designed to remove many of the restrictions that have previously been imposed upon today’s home buyers. Since the Great Recession, we are seeing more generational housing, and more minorities enter the home buying market. These households have family members who are helping support the home, even if they are not living there full-time.
This program has made a big impact with those who did not think they could purchase a home or refinance their present home. How does Home Ready help those who want to become homeowners?
First, the biggest obstacle to purchase a home is coming up with the cash necessary to fund the transaction. With today’s skyrocketing rents, it is hard to save up several thousands of dollars. However, HomeReady™ Conventional Mortgage in NC is now lessening the cash required:
- Low down payment. With a low 3.0% down payment required, the cash requirement is lessened significantly. On a $300,000 purchase, a 3.0% down payment is less than $10,000. That is much less than the cost of a late-model used car.
- Down Payment Assistance Available in NC: The NC Grant programs and Down Payment Assistance programs work with the new HomeReady™ Conventional Mortgage. There are household and borrower income restrictions (that vary based upon the program you are looking for), but they can make it possible to get into a home with very little money out-of-pocket.
- Gifts allowed. Fannie Mae is allowing all the cash required to fund the transaction to come from a gift from an immediate family member. Can FHA Gift Funds Come From A Spouse? Well, of course a current or previous spouse can “gift” the money for a FHA loan! The other “trick” is that the money for the Gift Funds must be sourced. This means that we must prove that the person who is giving the funds has evidence that they had the money in the bank for several months, or we must document where they borrowed the money from.
When parents help their children purchase a home, they are providing them with the most significant financial assistance possible. According to the studies published by the Federal Reserve Board, home owners have an average net worth of over ten times that of renters!.
- Help with closing costs. Fannie Mae permits lenders and sellers to pay most or all of the required closings costs, further reducing the cash needed to get to closing. It should be noted that these solutions could raise the price of the home or rate on the mortgage slightly.
Additionally, HomeReady™ Conventional Mortgage makes it easier for home buyers or those who are refinancing to qualify for a mortgage:
- Parents can help. Not only can parents give a gift, as an alternative they can co-borrow to help with the income needed to qualify. Parents do not have to live in the home to provide this assistance; however, a 5.0% down payment is required if this solution is utilized.
- Boarder and household income. These additional sources of income can be used to help qualify with proper documentation and history. For example, perhaps a spouse works, but cannot be on the mortgage because they have a very low credit score. Household income can be used to offset higher debt ratios within the qualification calculations – within certain limits.
Third, Home Ready is helping by lowering required payments for your mortgage. Lower payments not only make home ownership more affordable, but also help a prospective home owner qualify for the purchase:
- Mortgage insurance. Home Ready requires less mortgage insurance “coverage,” which lowers the required mortgage insurance payments. In addition, Hurricane Matthew destroyed our state in October of 2016, and while much of the damage has long been cleared away, the Disaster Area Declaration will remain for two years– terminating October 24, 2018. Because of this designation, you can take advantage of NO INCOME LIMITS on Conventional mortgage loans in CRAVEN COUNTY, New Bern and Vanceboro until this date. Lower priced PMI in Disaster Areas is something that many NC loan officers are not aware of, so I would be certain to speak with someone who knows all of the programs.
- “Fewer rate premiums.” In the wake of the recession and recovery, Fannie Mae added many costs to their mortgages in order to help fund their debt to the government after their bailout. This meant their rates were artificially higher for Banks selling loans to them. With the new HomeReady™ Conventional Mortgage in NC, they’ve rolled many of those costs back – making the rates for this program lower.
Finally, this program is putting Fannie Mae in a competitive position with FHA, meaning they expect this program to be one of the ways that First Time Home Buyers use for their first home because of innovative features like these:
- No first-time buyer requirement. Unlike their previous 3.0% down payment solution, Fannie Mae is not requiring those who use the program to be first time buyers. The applicant cannot own another home when they close their Home Ready transaction, except for parents helping children purchase as previously mentioned.
- Flexible income requirements. As a low-to-moderate income program, HomeReady™ Conventional Mortgage in NC does limit the income a potential home buyer can make to 100% of the area’s median income limit. However, there are areas in MASSIVE parts of NC that have NO Income Restrictions at all. This includes areas in much sought areas of Cities like Cary. We can help you determine which areas qualify for the more liberal guidelines and the general income limit for your area.
- Higher loan amounts. Fannie Mae is not only allowing loans to $424,100 with a low 3.0% down payment, in higher cost areas, the Home Ready Program can be used for loan amounts up to $636,150 with a 5.0% down payment. Again, we can help you determine the loan limit within the area in which you are considering purchasing.
- Down Payment Assistance Available: The NCHFA Agency down payment assistance programs are all available for this program, including the $15,000 Forgivable Mortgage Loan.
- STUDENT LOAN DEBT. Effective May 1, 2017 Fannie Mae updated their Mortgage Requirements with Deferred Student Loans. Previously, Fannie Mae required any student loan with a variable payment to be considered ineligible, and Fannie required us to count 1% of the outstanding balance as the monthly payment. So, if you had $120,000 in Student Loan Debt, even if you were only required to pay $245 a month, we had to consider a student loan payment of $1200 in the ratios! Most of the Student Loan Debt payments are based upon an Income Based Repayment Plan (or IBR) and have a deferred payment of ZERO reporting on the Credit Report. Effective with this new Fannie Mae change (which mirrors the stance that Freddie has always had) we CAN consider a variable payment.
- Refinance candidates. With no-cash out finances allowed at 97% of the value of the home, Home Ready will be a great solution for those who previously could not refinance because of a lack of equity. And again for high cost areas the limit would be 95% up to as high as $625,500. With home prices rising in many areas, those who were previously “underwater” may now have a viable refinance solution to take advantage of today’s low rates.
- Required Buyers Education Course that takes as much as an hour online, and costs $75.
There are also several non-occupying co-borrower aspects to this program that are really beneficial for those considering the new HomeReady™ Conventional Mortgage in NC:
- Non-occupant borrowers are allowed, similar to the FHA Kiddie Condo Program. With a down payment of 5% down payment the income is considered part of qualifying income and subject to applicable income limits.
- Innovative new feature that supports extended family households: will consider income from a non-borrower household member. Again, this is extremely helpful in cases where the spouse can not be on the loan.
- Compensating factor in DU to allow for a debt-to-income (DTI) ratio higher than 45%, up to 50%.
- Not counted as qualifying income.
- Non-borrower income must be at least 30% of the total monthly qualifying income being used by the borrower(s). (Note: Income from more than one non-borrower household member may be considered.)
- Non-borrower household members may be relative or non-relatives.
- Non-borrowers must document their income and sign a statement of intent to reside with borrower(s) for a minimum of 12 months. Documentation required only if DU determines the non-borrower income will provide a benefit.
- Rental income from accessory dwelling units may be considered in qualifying the borrower (per rental income guidelines).
- Lower than standard mortgage insurance coverage – 25% for LTVs above 90% to 97%. This is especially helpful if someone has less than 700 credit scores!
If you or your family have more questions about HomeReady™ Conventional Mortgage in NC, or you are looking for a mortgage loan in Cary or Raleigh, please call Steve and Eleanor Thorne, Mortgage Bankers in Cary , 919-649-5058