— FIRST-TIME HOMEBUYER LOAN

HomeReady Loan

for First-Time Buyers

Fannie Mae’s conventional pathway to homeownership for eligible low-to-moderate income buyers.

— ABOUT FIRST-TIME HOMEBUYER LOAN

HomeReady® Loan
for First-Time Buyers

HomeReady® is a conventional mortgage program offered by Fannie Mae, designed to expand access to homeownership for low-to-moderate income borrowers through flexible income treatment, a low down payment threshold, and reduced mortgage insurance costs for eligible buyers.

As a conventional loan backed by Fannie Mae, HomeReady® operates under a different structure than government-insured programs such as FHA. This distinction carries practical implications for mortgage insurance costs, loan limits, long-term financing flexibility, and the types of income that may be considered in qualification – all of which are worth evaluating in the context of a borrower’s specific financial profile.

HomeReady® is available to both first-time and repeat buyers who meet applicable income and eligibility requirements. It is not restricted to first-time purchasers, though its income-based guidelines make it particularly well-suited for buyers earlier in their financial journey or those whose household income structure benefits from the program’s flexible treatment of non-borrower income.

Pacific Home Loans evaluates HomeReady® eligibility alongside FHA, VA, Home Possible®, and other conventional options for every eligible buyer, with program selection based on the specific merits of the borrower’s qualification profile rather than program convenience.

→ First-Time Homebuyer Loan Programs

— PROGRAM FEATURES

HomeReady® Program
Features and Eligibility

3% Down Payment
Eligible borrowers may purchase a primary residence with a down payment as low as 3% of the purchase price. This applies to fixed-rate mortgage structures on qualifying properties and represents one of the lowest conventional down payment thresholds available. The down payment may be sourced from personal savings, eligible gift funds, or approved down payment assistance programs, subject to Fannie Mae guidelines.

Income Eligibility Requirements
HomeReady® is an income-restricted program. Qualifying income for all borrowers on the loan generally may not exceed 80% of the area median income (AMI) for the property’s census tract location. AMI thresholds are determined by county and updated annually by the Federal Housing Finance Agency. In higher-cost markets, the applicable AMI threshold reflects local median income levels, which may expand effective eligibility relative to lower-cost markets.
Confirming income eligibility against the applicable AMI limit for a specific property location is an essential step in the qualification process and should be addressed at the outset of the pre-approval conversation.

Flexible and Expanded Income Treatment
One of HomeReady®’s most meaningful distinctions is its treatment of income sources beyond the borrower’s primary employment.

Boarder Income: Rental income received from a person residing in the borrower’s home – a boarder – may be counted toward qualifying income in certain circumstances, even if the boarder is not a party to the loan. This provision can be particularly relevant for buyers in multi-generational households or those who rent a room within their primary residence.

Accessory Dwelling Unit (ADU) Income: Rental income from an accessory dwelling unit on the subject property may also be considered in the qualifying income calculation, subject to documentation and Fannie Mae guidelines. This is a meaningful feature for buyers purchasing properties with an attached or detached ADU, as it allows the income-producing potential of the unit to support qualification.

Non-Occupant Co-Borrower Income: HomeReady® permits a non-occupant co-borrower – such as a parent – to be added to the loan for income qualification purposes, even if that individual will not reside in the property. This provision assists buyers whose individual qualifying income may fall short of the threshold necessary to support the purchase independently.

Non-Traditional Credit Profiles
Borrowers who lack a conventional credit history – reflected by a traditional credit score – may still be eligible for HomeReady® provided that documented non-traditional credit references, such as rental payment history, utility accounts, or insurance payment records, can establish creditworthiness. This assessment is subject to underwriting approval and requires that at least one borrower on the loan meet minimum credit requirements where applicable.

Reduced and Cancellable Mortgage Insurance
HomeReady® loans require private mortgage insurance when the loan-to-value ratio exceeds 80%, consistent with standard conventional loan guidelines. However, Fannie Mae’s HomeReady® program offers reduced PMI pricing for income-eligible borrowers compared to standard conventional PMI rates at the same down payment level. Mortgage insurance is cancellable once the borrower achieves an 80% loan-to-value ratio, through principal paydown, appreciation, or a combination of both. This is a substantive long-term advantage relative to FHA financing, where mortgage insurance premiums generally continue for the life of the loan regardless of equity position.

Homebuyer Education Requirement
At least one borrower on a HomeReady® transaction is required to complete an approved homebuyer education course prior to loan closing. Fannie Mae’s HomeView® platform is the designated resource for satisfying this requirement. The education course should be completed early in the process – ideally during or prior to the pre-approval phase – to avoid timeline conflicts as the transaction progresses toward closing.

→ Home Buyer Counseling
→ Fannie Mae HomeView®

Mortgage Credit Certificate (MCC) Compatibility
Where available, HomeReady® financing may be combined with a Mortgage Credit Certificate program. The MCC converts a defined percentage of annual mortgage interest paid into a direct federal income tax credit – a dollar-for-dollar reduction in tax liability rather than a deduction – which can meaningfully increase the effective affordability of homeownership on an ongoing annual basis. MCC eligibility is program- and market-specific and should be confirmed during the pre-approval consultation.

→ Mortgage Credit Certificate

— ELIGIBLE PROPERTY TYPES

Property
Eligibility

HomeReady® financing is available for the following primary residence property types, subject to Fannie Mae guidelines and underwriting approval:

  • Single-family homes (1-unit)
  • Eligible condominiums (subject to project warrantability review)
  • Planned unit developments (PUDs)
  • Properties with accessory dwelling units (ADUs)
  • 2-unit properties, subject to occupancy and reserve requirements

HomeReady® is available for primary residence purchases only and may not be used for second homes or investment properties.

Condominium Considerations
Condominium purchases under HomeReady® require the project to satisfy conventional warrantability standards. Project eligibility — encompassing owner-occupancy ratios, HOA financial standing, litigation exposure, and insurance adequacy — must be confirmed prior to proceeding. In resort communities and vacation destination markets where condominium projects may carry short-term rental activity or elevated investor concentration, warrantability review is particularly important to address early in the process.

→ Buying a Condo
→ PrimeResort™ Condo Financing

Properties with Accessory Dwelling Units
HomeReady® has specific provisions that accommodate properties with ADUs, including the ability to count rental income from the ADU toward qualifying income. For buyers evaluating properties that include an existing or planned ADU, this feature warrants specific discussion during the pre-approval consultation to confirm how the ADU income will be documented and applied.

— COMPARING OPTIONS

HomeReady® Compared
to Other Programs

HomeReady® vs. Home Possible® (Freddie Mac)
HomeReady® and Home Possible® are structurally parallel programs – each offering a 3% down payment, income-based eligibility, and reduced mortgage insurance for qualifying borrowers. The meaningful differences lie in how each program treats specific income types. HomeReady® offers explicit provisions for ADU income and non-occupant co-borrower income that provide broader flexibility for certain borrower profiles. Home Possible® has its own treatment of boarder income and co-borrower scenarios. When a borrower qualifies for both programs, a direct comparison of terms and income treatment applicable to that specific file is the appropriate basis for program selection.

→ Home Possible® Loan

HomeReady® vs. FHA
FHA financing provides a 3.5% down payment option and more accommodating credit guidelines than HomeReady®, but carries mortgage insurance for the life of the loan in most cases. HomeReady® offers a lower down payment threshold, cancellable mortgage insurance, and broader income treatment options – but applies income limits that FHA does not. For borrowers who qualify under HomeReady® income thresholds and meet conventional credit standards, the conventional structure frequently produces better long-term economics. For borrowers whose credit profile benefits from FHA’s more flexible guidelines, or whose income exceeds HomeReady® limits, FHA remains a viable and often appropriate alternative.

→ FHA Loan

HomeReady® vs. VA
For eligible veterans and active-duty service members, VA financing offers superior terms in most circumstances – zero down payment, no mortgage insurance, and competitive rates. HomeReady® is the appropriate consideration for buyers who do not qualify for VA financing.

→ VA Loan

HomeReady® vs. Standard Conventional
A standard conventional loan does not carry income restrictions and is available at a range of down payment levels, but PMI costs at equivalent down payment levels are generally higher than under HomeReady® for income-eligible borrowers. For buyers who fall within HomeReady® income limits, the program typically offers a more favorable cost structure than a standard conventional loan at the same down payment.

— COMMON QUESTIONS

HomeReady®
FAQ

Have a question not answered here? Our team is available to walk through your specific scenario.

No. HomeReady® is available to both first-time and repeat buyers who satisfy the program’s income eligibility requirements and other qualifying criteria. Prior homeownership does not disqualify a borrower, provided income limits and other program requirements are met.

Eligibility is based on the area median income (AMI) for the census tract in which the subject property is located. The combined qualifying income of all borrowers on the loan generally may not exceed 80% of the applicable AMI. Limits are location-specific and updated periodically. The applicable AMI threshold for a specific property is confirmed during the pre-approval process using Fannie Mae’s income eligibility lookup tool.

Yes, subject to documentation requirements. Boarder income – from a person residing in the home who is not a party to the loan – may be counted toward qualifying income in certain circumstances. Rental income from an accessory dwelling unit on the subject property may also be considered. Both income types require specific documentation as defined by Fannie Mae guidelines and are evaluated on a case-by-case basis during underwriting.

Yes. HomeReady® explicitly permits a non-occupant co-borrower – such as a parent or other family member – to be included on the loan for income qualification purposes, even if that individual will not occupy the property. This provision can enable a buyer to qualify for a higher loan amount or meet income qualification thresholds that would not be achievable on the primary borrower’s income alone.

Yes. The 3% down payment may be sourced in whole or in part from eligible gift funds, subject to Fannie Mae documentation requirements. Approved down payment assistance programs may also be layered with HomeReady® financing in many cases, subject to the requirements of the specific assistance program. Eligibility for layered assistance is confirmed on a transaction-specific basis.

Mortgage insurance on a HomeReady® loan is cancellable upon reaching a loan-to-value ratio of 80%, whether through scheduled principal payments, appreciation, or both. Borrowers may formally request cancellation upon reaching this threshold, subject to lender requirements. This differs materially from FHA financing, under which mortgage insurance premiums generally continue for the life of the loan irrespective of equity position.

Yes. At least one borrower on the transaction is required to complete an approved homebuyer education course prior to loan closing. Fannie Mae HomeView® is the designated platform for HomeReady® borrowers. Completion of this requirement should be addressed proactively – early in the pre-approval phase – to avoid creating a scheduling constraint as the closing date approaches.

Yes. Properties with accessory dwelling units are eligible under HomeReady®, and the program includes specific provisions for counting ADU rental income toward qualifying income. For buyers evaluating properties with an existing ADU, the income treatment and documentation requirements should be discussed during the initial pre-approval consultation to ensure the qualification structure is properly established from the outset.

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