As Island residents know, extended family living arrangements are routine here. Hawaii’s deep traditions of ohana and the high cost of housing here combine to make it very common for multiple generations of families to live on the same plot and under the same roof.
Many kama’aina have good jobs, but family budgets are strapped by Hawaii’s high cost of living.
As most of our readers know, it’s common for Hawaii residents to have solid income histories but high debt-to-income ratios, and not much cash on hand to meet a high down payment requirement on a conventional loan. But they have substantial assistance available from family members, roommates and other tenants.
Furthermore, other borrowers don’t have to be living in the property. So it’s a great way for parents or other family members to help someone afford a home. Income limits may apply.
The HUD HomeReady program offers borrowers the following important advantages:
- Lower down payment and credit score requirements compared to conventional mortgage;
- Minimum credit score of 620 – generally lower than conventional mortgage requirements;
- Lower down payment requirements than even FHA loans – 3% vs. 3.5% for FHA mortgages;
- More flexibility for borrowers making down payments with gifted funds. Allows you to accept larger gifts for down payments and provides more flexibility when it comes to the borrowers’ source of funds;
- Unlike FHA loans, HomeReady loans don’t require an up-front mortgage insurance premium. This means much lower closing costs – and more money available to help you buy a home;
- Allows buyers to cancel mortgage insurance as soon as the loan-to-value ratio hits 20%. FHA loans require you to hold mortgage insurance for the life of the loan, until you pay off the loan or refinance into a new mortgage;
- PMI insurance is canceled automatically when the loan-to-value ratio hits 78% or lower.
- Family and friends can cosign, even if they aren’t going to be living in the property;
- Income from others in your household can help you get approved;
- Gifts, grants and Community Seconds can be used for down payment and closing cost funds;
- No minimum down payment contribution from the borrower’s own funds for 1-unit properties.
- HomeReady mortgages are available for refinances as well as first-time and subsequent homebuyers.
More details on the program are available here.
Is a HomeReady loan right for you?
A HomeReady loan may be a good fit for you if:
- You have parents who live with you or who will live with you in the new home;
- You have children who live with you and can contribute to household expenses;
- You have roommates, boarders or tenants who will contribute to household expenses;
- You are a creditworthy borrower with a low or moderate income (by Hawaii standards);
- You have limited funds available for a down payment (but you can put down at least 3%);
- You need flexibility with down payment and income qualification criteria.
A HomeReady mortgage lets you purchase any home listed on the HomeReady website with a down payment as low as just 3%.
Furthermore, if you meet program requirements and take an online course on homeownership, you may be able to qualify for a credit of 3% – which lets you borrow that much more, if needed, to purchase that dream home for you and your family.
For the best programs, try to have a min. credit score of 680 and an LTV (loan-to-value ratio) of 80%. That translates to a 20% down payment. If you can get to 20% down you won’t have to pay private mortgage insurance. But if you meet other requirements, you can get a HomeReady mortgage with a down payment of as low as 3%.
You will have to take an online homebuyer’s education course, which takes a few hours to complete.
To find out more about this exciting home loan program and if it’s right for you, call us today.
What you can do now.
“I kahiki ka ua, ako e ka hale.”
“Don’t wait until the rain comes to begin thatching your house.”
Meanwhile, it’s a good idea to start documenting any payments your family members, tenants or roommates make towards the mortgage. For boarder income to be eligible, there must be documented evidence of prior shared residency for the most recent 12 months. To show this, you’ll need not less than nine months of documented monthly payments (for example, a copy of the checks, canceled checks you can obtain from your tenant, or bank transfers) and ideally at least 12 months. If you haven’t been documenting their payments, the sooner you start, the sooner the day will come when you can get credit for their contributions.
At the same time, be sure you’re paying all your bills on schedule. Get a copy of your credit report from www.annualcreditreport.com and clear up any errors and delinquencies. Pay off as many of your smaller debts completely as you can, so those payments aren’t counting against you when it comes to your debt-to-income ratio. And, of course, save money for your down payment and any other homebuying expenses that may arise.
The HomeReady program isn’t for everybody. But even if it’s not a perfect match for you, don’t worry – Pacific Home Loans has lots of lenders and programs to choose from. This is just one of the many tools available to us. So there’s every chance that we can get you into a loan program that meets your needs – even in Hawaii!
So call us today at (808) 891-0415, and let us help you explore your options, and get you into the home of your dreams.