Fannie Mae is gearing up to launch HomeReady, a new program to facilitate homeownership in designated low-income, minority and natural disaster areas. HomeReady is scheduled to launch December 21, 2015.
Qualified homebuyers will be automatically identified during the underwriting process. Homebuyers qualify by purchasing property in:
- a low-income census tract at no homebuyer income limit;
- high minority census tracts and designated disaster areas at or below the area’s median income; or
- any other location, with an income limit of 80% of the area’s median income.
The homebuyer may include other sources of income to qualify for the required debt-to-income ratio (DTI), including:
- other non-homebuyer household members (like parents or siblings who will live with the homebuyer);
- non-occupying individuals who borrow funds on behalf of the homebuyer, such as parents or grandparents;
- anticipated income from an accessory dwelling unit on the property, like a room for rent, casita, basement apartment or granny flat.
Gifts, grants and Community Seconds (a financed down payment program) are all acceptable sources of down payment funds.
HomeReady requires a minimum 3% down payment, for a maximum loan-to-value ratio (LTV) of 97%. The homebuyer needs to purchase a single family residence (SFR), which they will occupy. Further, the program requires a lower mortgage insurance requirement of 25% for mortgages with LTVs between 90% and 97%.
To prepare homebuyers for the responsibility of owning a home, a four-to-six hour online course needs to be taken and passed by homebuyers in advance of obtaining a mortgage. The online educational course, which costs $75 and is provided by an affiliate of Fannie Mae, includes information on:
- choosing the type of mortgage best suited for homebuyers;
- managing money and personal finance;
- finding a home; and
- qualifying for a mortgage.
Once passed, homebuyers will receive a certificate of completion to show they have satisfied the education requirement. Further, homebuyers have access to home counselling and homeownership support for more assistance throughout the term of the mortgage.
HomeReady encourages multi-generational living
Non-Caucasian families are more likely to live in multi-generational households. Multi-generational living is one avenue to increase homeownership, since multiple incomes can be counted toward the DTI.
Allowing multiple income streams in the DTI calculation is a good step towards boosting homeownership in demographic areas featuring large minority populations. According to the Urban Institute, 69% of white families own their homes compared to just 45% of Hispanic families and 43% of African American families. This homeownership gap is due to relatively:
- lower lifetime earnings;
- higher student debt loads; and
- less savings for retirement than their Caucasian counterparts.
This national trend is mirrored in the microcosm of California.
Multi-generational living doubled from 1980 to 2012, with 57 million Americans living in multi-generational households. Numerous economic factors were the catalyst for the rise of multi-generational living such as:
- high unemployment amongst adult children;
- escalating student loan debt; and
- aging Baby Boomers, some of whom moved in with children.
HomeReady calls these families extended-income households (EIH). Most multi-generational families are also minority families, as in California:
- 4% of White non-Hispanic households are multi-generational;
- 9% of Black or African American households are multi-generational;
- 11% of Asian households are multi-generational; and
- 13% of Hispanic households are multi-generational, according to the S. Census.
With HomeReady, multiple income-earners living in the household means homebuyers have the financial assistance they need to keep their homes, if an emergency such as unemployment occurs.
Agents and housing counselors inform homebuyers
In addition to economic assistance, homebuyers benefit from knowing more about the responsibilities of homeownership. With this mandated education, buyers are better equipped to keep their homes as shown by studies conducted in 2012 by the U.S. Department of Housing and Urban Development (HUD).
While HomeReady’s mandated education course on the economic realities of purchasing and owning a home is a powerful tool for homebuyers, knowledgeable agents are their best resource.
As gatekeepers to the real estate world, real estate agents keep clients informed about real estate matters such as:
- shopping around for mortgages [See RPI Form 312];
- cost of utilities and home maintenance [See RPI Form 306]; and
- how to manage their debts to lower their DTI.
Thus, agents need to be prepared to discuss the material provided by HomeReady with their buyers.