HomeReady™ Loans have really made the mortgage industry much more accessible for those borrowers that have low income, but would otherwise be a good risk for a lender. This loan program enables borrowers to use other income in the household to qualify, rather than strictly the income from the borrower and co-borrower. The catch to the program, however, is that the home you purchase must be located within a low-income census tract or a high-minority census tract. If it is not within one of those areas, your total household income cannot exceed 80 percent of the median income for the area. If you qualify based on the area and your income, you are in luck, because this program only requires a 3 percent down payment for most borrowers.
Who can Put just 3 Percent Down?
A majority of borrowers will be eligible to put just 3 percent down on their HomeReady™ Loan. These borrowers are those that the underwriter can use automated underwriting on, letting the system refer the borrower to the HomeReady™ program because he has the credit qualifications to be a low risk for the lender, but has a higher than acceptable debt ratio for standard, conventional financing.
If you are unable to get approved via standard, automated underwriting, it does not mean you cannot obtain a mortgage; it means that an underwriter will have to manually underwrite your loan. This can work to your favor, however, because most underwriters are more understanding to unique situations and are able to grant exceptions that a computer generated program would be unable to do. The difference with manual underwriting, however, is that you will be required to put a slightly higher down payment of 5 percent down. On a $100,000 purchase price, that would be the difference of $3,000 with a 3 percent down payment and $5,000 with a 5 percent down payment.
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Where can the Funds Come From?
One of the largest problems many people have with any mortgage is coming up with the down payment. With the above example of a $100,000 purchase price, you have a significant amount of money to save up in order to put money down on the home. If you live within a low-income census tract, coming up with $3,000 or $5,000 can be difficult. With HomeReady™ loans, though, the down payment funds can come from a variety of sources; they do not strictly have to be your own funds as is the case with many conventional financing programs.
You can accept money from almost anyone in your life that is willing to donate to your desire to purchase a home as long as you are purchasing a one unit property, such as a single family home, townhome, or condo. Relatives, friends, and even employers can provide you with money to obtain your new home. The key factor is that you can prove that the funds are a gift and not a loan. If they are a loan, and the person providing the money expects payment back, the loan will have to get configured into your debt ratio, which may hurt your approval in the long run.
The ability to gain down payment funds from a variety of places can help you to get into a home. Employers and relatives are often willing to provide funds to those close to them to help them purchase a home and there are often grants available in many areas that can assist you as well. If you have good credit and have the qualifying income on your own or have total household income that can help you qualify for the HomeReady™ program, it is worth it to find a way to get the 3% down payment funds necessary to purchase a home.Click to See the Latest Mortgage Rates»