The HomeReady™ Mortgage makes it possible to purchase a property using income from people that live in your household, yet are not a borrower on the application. Typically, this applies to a single-family home; however, the program is available for the purchase of a multi-unit residential property including a 2, 3 or 4-unit property.
The Varying Loan-to-Value Ratios
Typically, the HomeReady™ Mortgage only requires a 3 percent down payment. This is in the case of a one-unit property, however. If you choose to purchase a 2, 3, or 4-unit property and rent it out, you will have differing loan-to-value ratio maximums; they are as follows:
- 2-unit property – 85% LTV for a fixed rate mortgage (15% down payment) and 75% LTV for an adjustable rate mortgage (25% down payment)
- 3 or 4-unit properties – 75% LTV (25% down payment) for a fixed rate mortgage; an adjustable rate mortgage is not available for multi-unit properties with more than 2 units because of the higher risk level they possess
The Borrower’s Funds
If you use the HomeReady™ Mortgage to purchase a multi-unit property, there are specific minimum borrower contributions you must abide by in order to qualify. If you purchase any multi-unit from 2 to 4 units, you must put down at least 3 percent of your own money on the property if you borrow more than 80 percent of the sales price of the home. The remaining down payment that is required, as is detailed above, can come from gift funds or even grants, as long as the 3 percent minimum is satisfied.
Qualifying for the HomeReady™ Mortgage
The above requirements are the only differing requirements for a HomeReady™ Mortgage used to purchase a 2, 3 or 4-unit property. The remaining qualifications remain the same:
- You must have good credit either with standard reporting trade lines or alternative credit that includes a housing payment, utility payment, and at least one other non-traditional trade line, such as tuition, daycare costs, or insurance.
- You have a qualifying debt ratio between 45 and 50 percent if you plan on using any extended household members income as a compensating factor or a debt ratio lower than 45 percent if you plan on qualifying on your own.
- All qualifying borrowers must provide their identifying information as well as their income details in order to qualify for the loan. Each borrower must have good credit and qualifying income that can be verified in order to obtain the loan.
- All employment and income must be fully documented and verifiable. The documents accepted include paystubs, W-2s, and tax returns.
- Any extended household members that provide income as a compensating factor must total at least 30 percent of the total household income either on their own or in collaboration with all extended household members.
- You must purchase a property that is within the low-income or high-minority census tract in order to have qualifying income that equals up to 100 percent of the average median income for the area.
- If you choose to purchase a multi-unit property that is outside of the low-income or high minority census tract, your total qualifying income cannot exceed 80 percent of the average median income for that area, which can be found on Fannie Mae’s HomeReady™ website.
Purchasing a multi-unit property with the HomeReady™ Mortgage works much the same way as a standard purchase works with the same program. The only differences are the maximum LTVs allowed and the amount of money that must come from your own funds in order to purchase the home.