HomeReady First: Key Requirements and Benefits Explained

Buying a home can feel out of reach for many, especially first-time buyers or those with limited savings. Fannie Mae’s HomeReady First program helps make homeownership more accessible with flexible requirements and financial benefits.

This program offers options that may make it easier to qualify compared to traditional loans. Understanding its key requirements and advantages can help potential buyers determine if it’s the right fit.

Credit Score Eligibility

A borrower’s credit score plays a major role in mortgage approval. HomeReady First offers more flexibility than standard conventional loans, considering applicants with a minimum score of 620. However, those with scores of 680 or higher typically receive better interest rates and lower borrowing costs.

Lenders assess creditworthiness by reviewing payment history, outstanding debts, and credit length. A strong record of on-time payments and responsible credit use improves approval chances. For applicants with limited credit history, alternative data such as rent and utility payments may be considered.

In addition to credit scores, lenders evaluate a borrower’s debt-to-income (DTI) ratio, which compares monthly debt obligations to gross income. A DTI below 45% is generally preferred, though higher ratios may be accepted if the borrower has additional savings or a co-borrower with strong credit.

Income Limits

HomeReady First is designed for moderate-income borrowers and includes income restrictions based on location. Fannie Mae sets income limits at 80% of the area median income (AMI), which varies by region. Higher-cost areas may have higher limits, while lower-cost regions have stricter caps.

Lenders consider all sources of income, including wages, salaries, bonuses, commissions, and non-traditional earnings such as rental income from boarders or part-time work. Stability and consistency of income are key factors in approval. Borrowers exceeding the income limit for their area may need to explore other loan options.

Occupancy Provisions

HomeReady First is only available for primary residences. Borrowers must live in the home and provide documentation such as a driver’s license update, utility bills, or an occupancy affidavit at closing. Misrepresenting occupancy for rental purposes can lead to serious consequences, including loan default or foreclosure.

The program allows non-occupant co-borrowers, such as family members, to help with mortgage qualification. This can benefit younger buyers or those with limited income, as a co-borrower’s financial strength can improve loan eligibility. However, lenders still assess the co-borrower’s credit and financial stability.

Property Type Requirements

Eligible properties include single-family homes, condominiums, townhouses, and certain manufactured homes that meet Fannie Mae’s structural standards. Multi-unit properties are limited to duplexes, with the borrower required to live in one unit. Three- and four-unit properties are not eligible due to higher financial risk.

Condos and co-ops must meet Fannie Mae’s approval criteria, which consider owner-occupancy rates, association dues, and financial stability. Developments with excessive investor ownership or legal disputes may not qualify. Manufactured homes must be permanently affixed to a foundation and classified as real estate.

Mortgage Insurance Aspects

Borrowers putting down less than 20% must pay private mortgage insurance (PMI), but HomeReady First offers reduced PMI costs compared to standard conventional loans. Lower PMI rates help keep monthly payments more affordable.

PMI can be canceled once the loan-to-value (LTV) ratio reaches 80% through regular payments or home appreciation. Unlike FHA loans, which require mortgage insurance for the life of the loan unless refinanced, HomeReady First allows borrowers to remove PMI once they reach the required equity threshold. Lenders may require a home appraisal to confirm the property’s value before approving cancellation.

Down Payment Options

HomeReady First allows borrowers to purchase a home with as little as 3% down, significantly lower than the 5% or more required by many conventional loans. This lower requirement helps buyers enter the market sooner without needing years to save.

The program permits down payment assistance from sources such as family gifts, employer assistance programs, and eligible grants. Unlike some loan programs that require borrowers to contribute a portion of their own funds, HomeReady First allows the entire down payment to come from approved sources. Lenders verify the source of funds through documentation like gift letters or grant approval notices.