Making an Affordable Mortgage Product Easier to Use, Available to More Homebuyers
Fannie Mae launched HomeReady® mortgage last year to help low- to moderate-income borrowers who want to buy homes but have difficulty saving for a 10 to 20 percent down payment. With HomeReady, these borrowers can put as little as 3 percent down, and “nontraditional” income, such as income from a rental unit, can be considered by the lender when underwriting the loan.
HomeReady has already been used by Fannie Mae lenders to help thousands of families.
But we knew could do better.
So we asked our lenders for feedback. And what we learned was pretty simple. Regulatory changes have complicated their business enough. They did not need or want any more complexity. And, some told us that HomeReady, especially the income requirements that differentiated allowable income by census tract (some as low as 80 percent of area median income or AMI), was too complicated.
It became our mission to win them over.
3 Ways We’ve Simplified
We wanted HomeReady to be the product lenders and real estate agents think of for their low- to- moderate-income clients. As a powerful alternative to FHA loans. As a safe and sound, conventional option. And with an education feature that better prepares their clients for sustainable homeownership.
We announced enhancements in July to make HomeReady simpler.
First, we raised income limits so that all areas are eligible to 100 percent of AMI, with low income market tracts having no limits on income at all. So now lenders can easily match HomeReady eligibility to the AMI for the city or area where lenders work.
Second, there were parts of the underwriting process lenders cited as challenging — product nuances that varied from our standard guidelines. We’ve simplified those so lenders can have more certainty that the loan can be delivered to Fannie Mae.
Finally, we clarified our borrower education requirement because we think that’s an important product advantage. Our analysis of loans originated through state Housing Finance Agencies (HFAs) and those with down payment assistance through Community Seconds shows these loans consistently perform better than those with similar characteristics originated through other channels.
Why? These programs require homeownership education or counseling. This assistance helps buyers effectively understand and manage the risk and enjoy the benefits of sustainable homeownership.
The Importance of Education
All HomeReady borrowers complete an online education course offered by Framework Homeownership.
Framework gets high marks from first-time and repeat homebuyers. It provides the essential knowledge to prepare borrowers for homeownership.
And we’ve recently added flexibility for more in-depth help for buyers still facing real barriers like weak credit and limited savings. We’ve expanded our guidelines to support one-on-one counseling, so consumers who meet with advisors for customized consultation (involving a comprehensive review of goals, household budget, and credit) can fulfill HomeReady’s educational requirement and be qualified with higher loan-to-value ratios.
We think this change opens the doors to homeownership for borrowers who were unable to qualify in the past based on their debt-to-income ratio. With individualized help from a professional advisor, they can move into homeownership when they are ready.
The counseling industry is very excited about this change, and happy to be recognized for the great work that they do.
Getting the Word Out
Fannie Mae’s account teams work directly with lenders to help them understand HomeReady and its benefits. Additionally, we offer lenders and real estate agents support through our:
- Online Marketing Center where you can customize and download free materials to meet your business needs.
- Regular live webinars about our products (visit our training page for information and schedules).
- Product materials on our business website to help you get customers into a home.
Framework also offers coupons for its course that can be used by lenders and real estate agents as client perks.
Changing the Market
HomeReady will continue to evolve.
We’re trying to think of the specific needs of future buyers and make sure any future versions of HomeReady have features that work well for them. We’re also aware that a lot of people who lost equity during the housing crisis may be returning to the market. We’ll keep monitoring these trends and keep asking for feedback from all parties.
We want to offer the best choice for preparing all buyers for sustainable, affordable homeownership.
Jonathan Lawless is Fannie Mae’s Vice President of Product Development and Affordable Housing.