Government mortgage loans have yet to “get with the times” and recognize that not all families live by the one home, one family structure. As a result, traditionally lenders could not consider non-borrower income when determining eligibility for a mortgage. To address this discrepancy, Fannie Mae is unveiling a new program called HomeReady that will allow borrowers to include income from roommates and boarders to qualify for a mortgage.
The new lending option is aimed at helping creditworthy borrowers with lower and moderate incomes to have access to an affordable, sustainable mortgage. To assist in this, income from a non-borrower household member can be considered to determine an applicable debt-to-income (DTI) ratio for the loan for the first time, helping multi-generational and extended households qualify for an affordable mortgage.
Fannie Mae’s research indicates that these extended households tend to have incomes that are as stable (or more stable) than other households at similar income levels, positioning them well for homeownership.
Other HomeReady flexibilities include allowing income from non-occupant borrowers, such as parents, and rental payments, such as from a basement apartment, to augment the borrower’s qualifying income. First-time and repeat homebuyers can purchase a home using HomeReady with a downpayment of as little as 3 percent.
Many lenders typically have refused to recognize income from such sources except in very special circumstances because Federal Housing Administration (FHA) guidelines do not allow income from roommates to be considered in determining whether a borrower qualifies for a mortgage. Boarders, on the other hand, are able to be included but only if the boarder is related by blood, marriage or law. Even more restrictive, the U.S. Department of Veterans Affairs will not allow such sources of income to be considered at all.
“HomeReady will help qualified borrowers access the benefits of homeownership with competitive pricing and sustainable monthly payments,” said Jonathan Lawless, vice president for underwriting and pricing analytics at Fannie Mae. “We are also confident this mortgage option will create business opportunities for lenders serving the changing demographics and borrower needs seen in today’s market. The combination of our risk management safeguards and an innovative online education tool will put HomeReady borrowers in a strong position to succeed in homeownership.”
HomeReady will be available to borrowers at any income level for properties in designated low-income census tracts, and to borrowers at or below 100 percent of area median income (AMI) for properties in high-minority census tracts or designated natural disaster areas. For properties in remaining census tracts, HomeReady borrowers must have an income at or below 80 percent of AMI. Approximately half of census tracts will be subject to the 100 percent AMI limit or have no income limit.
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