Fannie Mae's HomeReady® Loan: Your Guide to an Affordable Mortgage
HomeReady® is an affordable mortgage mortgage program from Fannie Mae. Home buyers are required to make a minimum 3% down payment and meet income limits that are based on the property’s location.
What Is a HomeReady Mortgage?
A HomeReady mortgage is a type of conventional mortgage, meaning it's not insured by the federal government like FHA or VA loans. It was created by Fannie Mae to serve creditworthy, low-to-moderate-income borrowers. The program helps buyers overcome common barriers to homeownership, such as saving for a large down payment or meeting strict income requirements. Because of its favorable terms, including reduced private mortgage insurance (PMI) rates, a HomeReady loan can often result in a lower monthly payment than other low-down-payment options.
Key Facts at a Glance
| Requirement | HomeReady Mortgage |
|---|---|
| Minimum Credit Score | 620 |
| Minimum Down Payment | 3% |
| Current Average Rate | 6.50% |
| Income Limits | 80% of Area Median Income |
| Suitable For | Low-to-moderate income borrowers with good credit |
Key Definitions
Here are the key terms you'll encounter when exploring HomeReady loans:
- Area Median Income (AMI)
- The midpoint income for a specific area, meaning half of the households earn more and half earn less. HomeReady requires income at or below 80% of AMI.
- Private Mortgage Insurance (PMI)
- Insurance required when your down payment is less than 20%, protecting the lender if you default. HomeReady offers reduced PMI rates compared to standard conventional loans.
- Debt-to-Income Ratio (DTI)
- The percentage of your gross monthly income that goes toward debt payments. HomeReady allows DTI up to 50% with compensating factors.
- Loan-to-Value Ratio (LTV)
- The ratio of your loan amount to the home's appraised value. HomeReady allows up to 97% LTV with 3% down payment.
- Non-Occupant Co-Borrower
- A co-borrower who won't live in the home but whose income can be used to help you qualify for the mortgage.
- Accessory Dwelling Unit (ADU)
- A secondary living space on your property, such as a basement apartment or in-law suite, that can generate rental income to help you qualify.
Who Is the HomeReady Program For?
The HomeReady program is designed for a specific type of home buyer. It provides an affordable and accessible path to homeownership for those who might not qualify for a traditional mortgage. The table below outlines the ideal candidate for a HomeReady loan. See if you fit the profile.
| Qualification Requirement | Description |
|---|---|
| Low-to-Moderate Income | Your income is at or below 80% of your area's median income (AMI). This is the program's primary requirement. |
| First-Time or Repeat Home Buyer | The program is open to everyone, whether it's your first home or you've owned one before. |
| Limited Cash for Down Payment | You can get into a home with as little as 3% down, and the funds can come from gifts, grants, or other sources. |
| Credit Score of 620 or Higher | A credit score of 620 is the minimum needed to qualify, making it accessible for those still building their credit history. |
| Needs Flexible Income Qualification | You can use income from a co-borrower, a boarder, or a rental unit (like a basement apartment) to help you qualify for your mortgage. |
HomeReady Loan Benefits
HomeReady offers several distinct advantages that make it an attractive option for home buyers who meet the requirements. These benefits are designed to reduce the costs and simplify the process of buying a home.
| Benefit | How It Helps You |
|---|---|
| Low 3% Down Payment | Reduces the biggest hurdle for many buyers, requiring just a 3% down payment. |
| Flexible Funding Sources | Your down payment and closing costs can be funded through personal savings, gifts from family, or grants from down payment assistance programs. |
| Cancellable Mortgage Insurance | Unlike FHA loans, the private mortgage insurance (PMI) on a HomeReady loan can be cancelled once you reach 20% equity in your home, lowering your monthly payment. |
| Co-Borrower & Rental Income | You can include income from non-occupant co-borrowers (like a parent) or rental income from an accessory dwelling unit (ADU) to help you qualify. |
| Favorable Pricing & Rates | Borrowers who meet the requirements often receive better-than-average mortgage rates and lower PMI costs, saving you money over the life of the loan. |
HomeReady Loan Requirements for 2025
To qualify for a HomeReady loan, you and the property you're buying must meet a specific set of criteria established by Fannie Mae. These requirements ensure the program serves its intended audience of low-to-moderate-income buyers.
Earn No More Than 80% AMI For Your Area
Your household income cannot exceed 80% of the Area Median Income (AMI) for the home's specific location. AMI is the midpoint income for a specific area, meaning half of the households earn more and half earn less. HomeReady is for low-to-moderate income households so the limits are strict.
Use the calculator below to see the Homeready® Income Limit where you live.
Check AMI Income Limits for HomeReady®
Enter any U.S. property address to see its AMI Income limit.
Based on Fannie Mae area limits; amounts may change. HomeReady® is a registered trademark of Fannie Mae.
Make A 3% Downpayment Or More
The minimum down payment for a HomeReady loan is 3% of the home's purchase price. These funds can come from various sources, not just your own savings. This flexibility makes it easier to gather the necessary funds for closing.
Have A 620 Credit Score or Higher
A minimum credit score of 620 is required for a HomeReady loan. Fannie Mae uses the FICO scoring model, which gives less weight to medical debt collections. If you don't have a credit score, you may still be able to use non-traditional credit history, such as a history of on-time rent and utility payments.
Complete Homebuyer Education
If all borrowers on the loan are first-time home buyers, at least one person must complete a homeownership education course. This requirement is designed to prepare you for the responsibilities of owning a home. Fannie Mae offers its own free online course, HomeView, which fulfills this requirement. Completing the course provides valuable knowledge that helps you become a successful homeowner.
Comparing HomeReady, FHA, and Home Possible Loans
When looking for a low-down-payment mortgage, you'll likely come across several options. HomeReady, FHA, and Home Possible (from Freddie Mac) are three of the most popular choices. Understanding their key differences will help you decide which program is the best fit for your financial situation.
| Feature | HomeReady | FHA Loan | Home Possible |
|---|---|---|---|
| Minimum Down Payment | 3% | 3.5% | 3% |
| Credit Score Minimum | 620 | 580 | 620 |
| Mortgage Insurance | Cancellable PMI at 20% equity | MIP for life | Cancellable PMI at 20% equity |
| Income Limits | Yes, 80% of Area Median Income | No income limits | Yes, 80% of Area Median Income |
| Property Types | 1-4 unit primary residence | 1-4 unit primary residence | 1-unit primary residence only |
| Upfront Insurance | None | 1.75% upfront MIP | None |
| Best For | Borrowers with good credit and income below the area median | Borrowers with lower credit scores or who don't meet income limits for other programs | Similar to HomeReady, for borrowers with good credit and income below the area median |
📊 Key Statistic
Solutions for Your Homeownership Journey
My income is too high for HomeReady
HomeReady is designed for low-to-moderate income borrowers. If your income exceeds the 80% AMI limit, you have several excellent alternatives:
| Alternative Program | Income Requirements | Credit Score | Down Payment |
|---|---|---|---|
| Conventional 97 | No income limits | 620 | 3% |
| FHA Loan | No income limits | 580 | 3.5% |
| Standard Conventional | No income limits | 620 | 3-20% |
Check Your Income Limit Use Homebuyer.com's AMI Lookup Tool to see if you qualify for HomeReady in your area.
My credit score is below 620
HomeReady requires a minimum credit score of 620. If your score is lower, here are your options:
| Action | Timeline | Impact |
|---|---|---|
| Pull credit reports | Today | Free |
| Dispute errors | 30 days | Up to 100 points |
| Pay cards below 30% | This month | Up to 150 points |
| Auto payments | This week | Prevents late fees |
Alternative Programs for Lower Credit Scores:
| Program | Minimum Credit Score | Down Payment |
|---|---|---|
| FHA Loan | 580 | 3.5% |
| VA Loan | 620 | 0% |
| USDA Loan | 640 | 0% |
I don't have money for a down payment
HomeReady requires 3% down, but there are ways to get this money:
| Source | What They Offer | How to Apply |
|---|---|---|
| State housing agency | Grants up to $15,000 | Search "[Your State] down payment assistance" |
| Local housing authority | Forgivable loans | Call your city/county housing office |
| Employer benefits | $5,000-$10,000 grants | Ask HR about homebuyer benefits |
| Nonprofit housing organizations | Closing cost help | Search for local housing nonprofits in your area |
Alternative Sources for Down Payment
| Source | What You Need | How to Get It |
|---|---|---|
| Family gift | Gift letter from donor | Ask family for documented gift funds |
| 401(k) loan | Employer plan allows loans | Contact your 401(k) administrator |
| Sell items/work | Extra income or assets | Sell unused items, take side jobs |
| Tax refund | Tax filing completed | File taxes early, use refund for down payment |
HomeReady: Common Limiting Beliefs
"I need perfect credit to buy a home."
HomeReady requires a minimum credit score of 620 . Higher scores may help with rates and insurance costs.
"PMI will cost me thousands and never go away."
HomeReady PMI is typically less expensive than FHA insurance. You can request to cancel it once you reach 20% equity.
"Low-income buyers can't get conventional loans."
HomeReady is available to low-to-moderate income borrowers. The program is designed for applicants with income at or below 80% of the area median income.
"I need 20% down payment to buy a home."
HomeReady allows a minimum down payment of 3%.
"Government loans have better rates than conventional."
Borrowers with strong credit may receive competitive rates on HomeReady compared to FHA loans.
"Home buying takes months and months."
HomeReady loans typically close in 30 to 45 days.
"I can't use gift money from my family."
HomeReady allows gift funds from family members for your down payment and closing costs, with proper documentation.
"I make too much money to qualify for help."
HomeReady is for borrowers whose income is at or below 80% of the area median income for the property location.
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Article Sources
- Fannie Mae HomeReady Program Guidelines
- AMI & Income Limits Lookup Tool
- Mortgage Loan Limits by County
- Consumer Financial Protection Bureau (CFPB) Mortgage Data
Important Notice: We are not a mortgage lender and cannot guarantee loan approval or specific terms. All loan programs are subject to lender approval and individual qualification requirements. Contact a mortgage lender to discuss your specific situation and available options.
