In this installment of "Loan Officer Training," we delve into the intricacies of structuring Fannie Mae HomeReady loans tailored for first-time homebuyers. Understanding the nuances of HomeReady loans is essential for loan officers aiming to assist clients in achieving their dream of homeownership.
Join us as we dissect the key components of Fannie Mae's HomeReady program. From eligibility criteria and income requirements to down payment options and borrower education, we provide a comprehensive guide to navigating the HomeReady loan process seamlessly.
Explore the benefits and features of the HomeReady program designed to empower first-time homebuyers, including flexible underwriting guidelines, reduced mortgage insurance premiums, and down payment assistance programs. Learn how to leverage these advantages to help your clients secure affordable financing and overcome common barriers to homeownership.
Gain valuable insights into structuring HomeReady loans that meet the unique needs of first-time homebuyers while ensuring compliance with Fannie Mae's guidelines. Whether you're a seasoned loan officer or new to the HomeReady program, this episode equips you with the knowledge and strategies to effectively serve this vital market segment.
Tune in to elevate your expertise in structuring Fannie Mae HomeReady loans and empower first-time homebuyers on their path to homeownership.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Restream recording May (00:00):
Welcome everyone.
My name is Kyle Hiersche.
I'm the COO of the MortgageCalculator joined here by our
president Nick Hiersche and oursales manager, Jose Gonzalez.
We are a lender specializing innon QM loans and what we do
every Tuesday, Wednesday, andThursday evening at 7 p.
m.
Eastern is this loan officertraining where we do a in depth
training on a different loantopic.
And today we're going to betalking about home ready loans.
(00:23):
So Jose, if you are ready, Let'sgo ahead and get into it.
Good evening, everybody.
Thank you for joining us fortonight's training on Fannie
Mae's Home Ready Loan.
Don't confuse this one withFreddie Mac's Home Possible,
which is the sister program ofthis one, right?
(00:43):
Fannie and Freddie are the twoagencies that handle secondary
for conventional loans and arethe guidelines that we use.
So Home Ready is a 3 percentdown option.
Right.
And it is an affordable loanoption.
(01:03):
So not necessarily justrestricted to first time
homebuyers, although first timehomebuyers love this program
because it does have lower MIand lower rates than your
traditional 3 percent downprogram.
So let's get right into how tostructure a Fannie Mae home
ready loan.
(01:26):
So, like I always like to giveyou the clinical definition
first, right?
What is a Fannie Mae Home ReadyLoan?
It is a conventional communitylending mortgage and the key
word there is community.
Which means that it is anaffordable option.
It is a conventional communitylending mortgage that offers
underwriting flexibilities,which we're going to get into to
(01:48):
qualified borrowers who meetspecific income criteria.
The home ready mortgage is astandard product offering
available to all Fannie Maelenders.
So like I mentioned, being acommunity lending product, it is
an affordable lending program.
(02:08):
So, and a misconception on thisprogram is that it is not
restricted to first time homebuyers only.
You can actually own anotherproperty and qualify for this
program.
The main thing is that it is anaffordable option.
So there are going to be limits,which I'll get into shortly.
(02:29):
It does Offer lower interestrate than traditional 3 percent
down conventional first timehome buyer options.
And then, like I mentioned, italso has reduced MI.
So who qualifies for a homeready loan?
Well, I did mention that it isan affordable lending program,
(02:53):
so The borrower's income needsto be at or below 80 percent of
the area median income, alsoknown as AMI, unless the
property is located in a low tomoderate income or a minority
census tract.
(03:15):
And I've included there the URLfor going and checking the AMI.
So this is the Fannie Mae AMIwebsite.
Area median income look up.
So this program, like all otherconventional loan programs is
(03:35):
open to us citizens, uspermanent residents, non
permanent resident aliens, andrefresh your memories.
Again, a non permanent residentalien is a borrower who Is
legally authorized to work inthe United States.
They do not have their permanentresidency card, also known as
(03:58):
the green card.
And they obviously are not uscitizens, but they are legally
allowed to work in the U Seither because they have a
certain type of visa that allowsthem to work or because they
already have their workauthorization document, their
employment authorizationdocument, the EAD card.
(04:19):
And non permanent residentaliens obviously qualifying as a
non permanent resident alienbecause they're legally working
here in the U.
S.
would also have to have U.
S.
based credit and also be able tomeet whatever income guidelines
for the specific program.
The home ready loan is an optionfor 1 to 4 unit properties.
(04:44):
It is an option also formanufactured homes up to the max
97 percent loan to value.
But only if the manufacturedhome meets the M H advantage
requirements.
If you recall the manufacturedhome training recently M H
(05:04):
advantage states that theproperty, the manufactured home
itself needs to be a newerstyle.
So I believe it's either 1990 or1991.
Can't exactly remember thecutoff date, but it has to meet
the manufactured home advantagerequirements to be able to fund
a manufactured home period.
(05:27):
If it is an older manufacturedhome, then this 3 percent down
home ready option is not anoption.
It is for primary residencesonly.
And like all conventional loans,it is per the matrix a minimum
620 credit score.
(05:49):
However, please beware that thatdoes not mean that if the
borrower has a 620 credit scorethat they're automatically going
to qualify.
You would need to get your DUapproved eligible for this
program option.
Now it does state in the generalhome ready guidelines that
(06:17):
manual underwriting may be anoption.
However, that is going to dependon the actual investors to see
if the investors are acceptingmanual underwriting on these
files or they have an overlaythat would not allow it.
I haven't been able to find oneto do it.
(06:37):
That's why I mentioned.
Guideline says it, but there maybe overlays where the investors
will not do it.
The HomeReady is also forpurchases and rate and term
refinances only.
No cash out refinances ever,because remember this is an
affordable lending option and itis meant for home ownership to
(07:03):
buy a home or allow you to stayin the home by lowering the rate
and let you take advantage ofthe rate and term, but
definitely not to allow you tocash out any money at these
subsidized rates.
Very important to note for arate and term refi.
(07:25):
The loan being refinanced needsto be owned by Fannie Mae.
Needs to be a Fannie Mae loan.
You can't write in term, refi anFHA loan into this product or a
Freddie Mac loan or USDA anyother type of loan into this
Fannie Mae product.
It can only be Fannie Mae.
(07:46):
to Fannie Mae and per the FannieMae guidelines, borrowers may
have up to two financeproperties and still qualify for
a home ready so they could havetheir one property they may be
leaving and this property thatthey're buying would be two
(08:08):
finance properties.
So let's get into sometransaction details here.
So I did mention maximum 97percent LTV.
However, maximum CLTV of 105%When the first which home ready
(08:34):
loan is being combined with acommunity second.
So I would tell you to go checkthe guidelines for this product
and then check the investoroverlays for using community
seconds.
Cause there are a couple of ourinvestors that will allow it.
You just have to follow theirand their specific instructions
(08:56):
on how to combine it.
With the home ready.
So that is a good option foryour buyers that are low on the
funds, right?
Need that community second.
This is a way to do arms.
Adjustable rate mortgages arerestricted to 5, 7 and 10 year
(09:17):
arms only.
So it can either be a arm that'sfixed for 5 years and then
becomes an adjustable ratemortgage.
one fixed for seven years andthen becomes an adjustable rate
or one fixed for 10 years andthen becomes an adjustable rate.
They do not accept three year,one year, or six month arms.
Please note that there is amaximum loan to value of 95
(09:38):
percent if you have a nonoccupant co borrower.
So that is one of the coolthings on this program.
It does allow non occupant coborrowers.
However, again, They do thenreduce the LTV to 95 from the
maximum 97.
Now here's some pretty cooldeals.
(10:00):
If it's a one unit propertypurchase, the borrower is not
required to come in with anymoney from their own personal
funds, if gift or grant fundsare being used for what would
be.
Their down payment and theirclosing costs.
(10:21):
You know, technically you couldhave the cashless transaction.
If they're getting gift funds orgrant funds to make up that
portion that they would have togive, right?
So that's for a one unitproperty only for a two to four
unit property purchase.
(10:41):
The borrower is required to have3 percent from their own
personal funds, regardless ofall the structuring being done,
give grants, whatever they gotto come in with at least 3% of
the purchase price if it's a twoto four unit property, obviously
because of the investmentcomponent.
(11:03):
Now, home buyer education is notnormally required for this
program, but it is required ifthe borrower is a first time
home buyer.
So, if they happen to be a firsttime home buyer, then you do
have to do the take the homebuyer education.
(11:24):
And also really, reallyinteresting to note gifts,
grants and community seconds andup to 3 percent interest party
contribution is allowable forLTVs of 90 to 97%.
So that's a 3 percent interestedparty contribution, which would
be seller.
(11:46):
For example, realtor, lender.
And then the gift grants andcommunity seconds are not
subject to that 3%.
It's just letting you know thatthey do accept gifts, grants,
and community seconds for LTVsbetween 90.
01 and 97%.
(12:08):
So let's discuss in a little bitmore detail, some of the program
benefits, which I've alreadymentioned in a few of these
slides for.
this home ready program.
So I did mention, I didn'tmention before, but reserve
requirements, whatever they maybe, will be determined by DU.
(12:29):
So there is no set, you got tohave a minimum of one month, you
got to have a minimum of twomonths.
Whatever DU comes up with as arisk assessment for this loan
will determine if the, the,there's going to be a reserve
requirement.
Now I did mention now reducedMI.
(12:51):
So there is a reduced MI factorof 25 percent on 97 percent LTV
instead of the usual 35 percentfor the traditional 97 percent
LTV first time homebuyer option.
What does this mean in realnumbers?
Well, I ran a quote for 97percent LTV Purchase 500, 000
(13:14):
purchase.
It was 485, 000 loan.
Obviously good credit borrowerwith these low MIs, but on the
traditional 3 percent downproduct, the mortgage insurance
was 169.
75.
On the home ready MI product,the MI was 133.
(13:40):
38.
So you're looking at 36 roughly.
36 and 40 cents, roughlydifference, less expensive for
the home ready.
Am I, so that's like free moneyright there.
And on top of that, I ran acouple of quotes scenarios for
(14:02):
that same loan and the 3 percentdown first time home buyer,
which does have to be a firsttime home buyer for the
traditional 3 percent down loanthat came in 7.
125.
At par, whereas the home readyoption came in at 6.
(14:23):
875 at par.
So we're looking at a 0.
25 percent better rate for thehome ready option.
And then I did talk aboutunderwriting flexibilities,
right?
So we do have some innovativeunderwriting flexibilities,
(14:44):
which doesn't just include thefact that it's 3 percent down
and not a first time home buyer,right?
That's the first.
That's the first one.
But where it really getsinteresting for this program is,
for example, rental unit, suchas from an ADU, if it's a one
unit property.
(15:04):
Or from a two to four unitproperty and border income.
So you can use rental unitincome and border income to help
qualify the borrower.
You can also have non occupantborrowers, such as the parents.
(15:24):
There is, and I touched on thisbriefly, there is no minimum
contribution from the borrower'sown funds on one unit
properties.
Again, that's as long as thethree percent down, which would
be the usual requirement, isbeing obtained from gifts.
Or grants, right?
(15:44):
Because you do have to have themoney.
It's not just going tomaterialize on its own, but it
doesn't, you know, there is nominimum borrower contribution as
we see on conventional loans.
And I just did mention the giftor grant can be used to meet the
three percentile requirement.
Now, another great underwritingflexibility for this program is
(16:09):
cash on hand.
Now, how many times Have you hada borrowers?
They usually tend to be thefirst time homebuyers too, that
has money sitting around, right?
Under the mattress, quoteunquote, not yet in the bank.
So I will break it down for youin the next slide because I know
(16:30):
now people read that like, what?
Explain that a little bit more,Jose.
So cash on hand can be used withrestrictions, which I'll cover
in the next slide and sweatequity.
Can be used when working with anapproved eligible program
provider.
Now, what is sweat equity,right?
(16:53):
Sweat equity is the equity thatyou create when you yourself
partake in some of the labor ofthe project of the home.
So let's say your home was likea home ready.
Renovation purchase program,right?
And you are doing some of thework yourself through a, an
(17:17):
approved eligible programprovider that.
Puts together these kinds ofprograms where the whole with a
borrower can participate indoing some of the work
themselves, you know, thepainting, the cleanup, the
simple stuff, but that's a wayto allow you to build sweat
equity so that you, you know,you may not have all the money,
(17:40):
but if you can work.
for it and then get the creditfor it.
Why not?
Right?
And this program does allow youto do that, but you do have to
be working through an approvedeligible program provider for
these types of things wherethey, you know, they'll manage
the construction and let youpartake in the sort equity.
(18:02):
So in our last slide here, we'regoing to break down because I
know everyone's wondering Whatdid he mean by border income can
be used and cash on hand?
Because how many times have,have we not had right border
income on an application andwe've been stumped because it
(18:27):
hasn't been put on a tax return.
So, you know, the common answerwas, I'm sorry, if you don't, if
you're not reporting it on theschedule E on your tax returns.
We can't use it.
Well, if it's home ready, youcan do it right now.
I'm going to break it down therebecause the type's a little
small.
I had to make it a little smallso it would fit and I had to
(18:48):
condense it a little bit.
So border income up to 30percent of the total income that
is being used for the loanqualification can be used if the
border and the border we'retalking about the person that's
renting, right?
(19:10):
So if the border, and I'm goingto run through the different
bullet points, a is notobligated on the mortgage loan
and does not have an ownershipinterest in the property.
Right?
So definitely not anyoneinvolved in the transaction,
right?
So that's the first bulletpoint.
Second bullet point.
(19:30):
If the border has lived with theborrower for the last 12 months,
third point, If the border canprovide, and this is coming
from, they're going to ask theborder for this information, not
the borrower, right?
If the border can provideappropriate documentation to
(19:53):
demonstrate a history of sharedresidency, such as a copy of
their driver's license bill orbank statement that shows the
border's address as being thesame address as the borrower's
address, right?
So that, that's a pretty easyone there.
Just got to prove you livethere.
For the past 12 months.
And if the border also candemonstrate the payment of
(20:16):
rental payments, this iscritical because if it's cash,
they're out of gas, so they gotto demonstrate payment of rental
payments with documents such ascopies.
Of the canceled checks.
It could be obviously transfers,ACH transfers, Venmo, right?
(20:38):
A lot of people use Venmo orother cash apps to send money to
people.
That's that's documentable.
What's not documentable isactual cash, right?
How can you document cash?
That's going to be a tough onebecause they're asking.
the border to provide the proofthat they paid, not the borrower
(21:02):
to provide proof that theyreceived.
See, that's, that's the trickypart there.
So, and then what's, what's,what's another important detail
there is To the bar for the last12 months or at least nine of
the most recent 12 months,provided the rental income is
(21:24):
averaged over 12 months.
So they're giving you a breakthere because, you know,
sometimes maybe the border waspaying with the cash app, but
some months you were there and.
You know, just, he just paid youin person cash or whatever, but
you have at least ninedocumentable transactions.
Well, they'll let you go withit, but then you've got to
(21:47):
average over 12, whatever yourtotal income is received divided
by 12 months.
So you may shortchange yourselfa little bit there, but you're
still going to get the ink, someof the income.
The only issue you're not goingto get the whole 12 months is if
you didn't provide documentationfor all 12 months.
So if you have less than ninemonths.
(22:07):
that are documented, then it'snot going to work.
The minimum threshold is sothat's border income.
Very cool there.
And it didn't say anything inthe guidelines about having to
provide a schedule, you know, ona tax return either.
Right.
(22:28):
So I guess they feel that aslong as the border can provide
the proof of payment, what wasreceived, then the money was
actually received by theborrower.
And the second one and lastpoint we're touching on there is
cash on hand, man, oh man, I canremember all the times this has
(22:50):
been an issue.
However, it's not as easy as itseems, right?
Because in order to be able toqualify, to use that cash on
hand, it really has to be acustomer that that's how they
always handle their business.
Right.
And then.
The bullet points there are thelender must verify that the
(23:11):
borrower customarily uses cashfor expenses, right?
So they provide all theirexpenses of the month.
And you see that it's not paidvia transfers or canceled
checks.
Then you figure they're going tobe paid cash and the borrower
would probably have to provideto you some, you'd have to put
together some kind ofdocumentation there to show you
(23:33):
up.
These are his monthly expensesand this is how he pays him
cash.
The funds that you are going touse for the transaction, the
quote unquote cash on hand mustalready be.
In the bank or in an escrowaccount at the time of
application or no less than 30days prior to closing.
(23:56):
So it's not a total cash on handsituation.
Okay.
I got 5, 000 under my mattress.
Okay.
Yeah, sure.
Let's bring it to closing atleast 30 days prior to closing.
That money has to be depositedeither in a bank account or the
escrow account of the titlecompany.
(24:16):
Doing the deal these 30 daysprior to closing, you're going
to need a letter from theborrower disclosing the source
of the funds and that they arenot borrowed.
And then this last bullet pointis really the one that could
make the cash on hand situationfall apart is that the
(24:39):
borrower's credit report andother verifications should
indicate limited.
Or no use of credit and limitedor no depository relationship
between the borrower and afinancial institution.
So you're really talking aboutthis is for a borrower with very
(25:01):
limited credit.
Maybe you had some nontraditional credit on top of
that.
And that his bank statementsdon't really show a lot of
movement.
You know, in their account,because if they have the account
like that, and then you'retrying to give this, you know,
like a super busy accountshowing he's paying everything
with his bank account.
(25:21):
All of a sudden, you're tryingto use the cash on hand
exception here to home ready.
It's probably not going to work.
It's going to work for theborrower who fits the profile
and who all of theirdocumentation provided also fits
the profile.
And then.
That's something that would beaccepted.
(25:42):
Certainly not for the borrower.
That's just, you know, kept itat home because it was
undeclared income kind of deal,you know, we, we ran into those
every now and then.
That's probably not going towork.
So I've given you a few goodpointers here on HomeReady.
Hopefully enlightened some ofyou on some of the additional
(26:03):
benefits and uses for HomeReady,how you could use it.
Clarified to you all that thisis not a program just for first
time homebuyers.
This is more of an affordablelending based program.
And also remember that if yourborrower's income is above 80
percent, Of the area medianincome, but the census track
(26:26):
shows that isn't a low tomoderate income census track or
a minority census track, thenthe borrower would be eligible
for the program without incomerestrictions.
(26:51):
All right.
Looks like we got a couple ofquestions here.
So one question, I guess we'llbring it up on the screen here
is, Non permanent resident alienthrough Home Ready versus I 10
loan?
No, not exactly.
(27:11):
An I 10 is a different categoryof borrower than the non
permanent resident alien.
The I 10 does not have legalworking status in the United
States versus the non permanentresident alien that does.
have legal working status in theUnited States.
(27:34):
So an ITIN borrower would, youknow, is not going to have a
social security number.
Also, they're only going to havetheir ITIN, which is the number
that they need to be able tofile their tax returns because,
you know, They're working hereeither through their own
employment or some type ofemployment, right?
So they are working here.
(27:55):
They just don't have a thedocument to show that they're
able to legally work here.
The ITM borrower also isrequired to have U.
S.
based credit, just like the nonpermit resident alien.
So they're going to have toqualify for the income also of
whatever program type you'reputting in through, but they're
(28:17):
not the same type of borrower.
Because again, the non permanentresident alien can qualify as
long as they have the credit andthe income and the work
authorization, they can qualifyfor any program that any us
national borrower, be theycitizen or permanent resident.
Can qualify for.
So typically they can qualifyfor all the same programs versus
(28:40):
the ITIN that is only canqualify for only the ITIN
programs, which are veryspecific in nature.
Let's see here.
Another question.
Community seconds has to bereturned when home is sold or
refinanced.
Really can't answer that broadof a question because it really
depends on the communitysetting.
(29:02):
Right.
There's forgivable options, andthen there's repayable options,
just like when we have our downpayment assistance training that
we do, that we combine with anFHA loan or USDA, which is more
of a national based option.
Those are both forgivable orrepayable depending on the
program selected.
(29:25):
But the main thing to note onthat is that you have to really
look to the investor to see ifthey.
Allow it in, in their overlaysbecause Fannie Mae does allow
it, but that doesn't necessarilymean that every investor that we
do business with will allow it.
(29:48):
All right.
Well, no more questions.
I appreciate everybody tuningin.
Remember we do this at 7 PMEastern, every Tuesday,
Wednesday, and Thursday evening,where we go through a new loan
officer training topic.
So we will see you all tomorrow,7 PM Eastern for the next
episode of the loan officertraining series with the
mortgage calculator.
Have a great night, everyone.
That's okay, Ronnie.
Welcome everyone.
My name is Kyle Hiersche.
I'm the COO of the MortgageCalculator joined here by our
president Nick Hiersche and oursales manager, Jose Gonzalez.
We are a lender specializing innon QM loans and what we do
every Tuesday, Wednesday, andThursday evening at 7 p.
m.
Eastern is this loan officertraining where we do a in depth
training on a different loantopic.
And today we're going to betalking about home ready loans.
(00:23):
So Jose, if you are ready, Let'sgo ahead and get into it.
Good evening, everybody.
Thank you for joining us fortonight's training on Fannie
Mae's Home Ready Loan.
Don't confuse this one withFreddie Mac's Home Possible,
which is the sister program ofthis one, right?
(00:43):
Fannie and Freddie are the twoagencies that handle secondary
for conventional loans and arethe guidelines that we use.
So Home Ready is a 3 percentdown option.
Right.
And it is an affordable loanoption.
(01:03):
So not necessarily justrestricted to first time
homebuyers, although first timehomebuyers love this program
because it does have lower MIand lower rates than your
traditional 3 percent downprogram.
So let's get right into how tostructure a Fannie Mae home
ready loan.
(01:26):
So, like I always like to giveyou the clinical definition
first, right?
What is a Fannie Mae Home ReadyLoan?
It is a conventional communitylending mortgage and the key
word there is community.
Which means that it is anaffordable option.
It is a conventional communitylending mortgage that offers
underwriting flexibilities,which we're going to get into to
(01:48):
qualified borrowers who meetspecific income criteria.
The home ready mortgage is astandard product offering
available to all Fannie Maelenders.
So like I mentioned, being acommunity lending product, it is
an affordable lending program.
(02:08):
So, and a misconception on thisprogram is that it is not
restricted to first time homebuyers only.
You can actually own anotherproperty and qualify for this
program.
The main thing is that it is anaffordable option.
So there are going to be limits,which I'll get into shortly.
(02:29):
It does Offer lower interestrate than traditional 3 percent
down conventional first timehome buyer options.
And then, like I mentioned, italso has reduced MI.
So who qualifies for a homeready loan?
Well, I did mention that it isan affordable lending program,
(02:53):
so The borrower's income needsto be at or below 80 percent of
the area median income, alsoknown as AMI, unless the
property is located in a low tomoderate income or a minority
census tract.
(03:15):
And I've included there the URLfor going and checking the AMI.
So this is the Fannie Mae AMIwebsite.
Area median income look up.
So this program, like all otherconventional loan programs is
(03:35):
open to us citizens, uspermanent residents, non
permanent resident aliens, andrefresh your memories.
Again, a non permanent residentalien is a borrower who Is
legally authorized to work inthe United States.
They do not have their permanentresidency card, also known as
(03:58):
the green card.
And they obviously are not uscitizens, but they are legally
allowed to work in the U Seither because they have a
certain type of visa that allowsthem to work or because they
already have their workauthorization document, their
employment authorizationdocument, the EAD card.
(04:19):
And non permanent residentaliens obviously qualifying as a
non permanent resident alienbecause they're legally working
here in the U.
S.
would also have to have U.
S.
based credit and also be able tomeet whatever income guidelines
for the specific program.
The home ready loan is an optionfor 1 to 4 unit properties.
(04:44):
It is an option also formanufactured homes up to the max
97 percent loan to value.
But only if the manufacturedhome meets the M H advantage
requirements.
If you recall the manufacturedhome training recently M H
(05:04):
advantage states that theproperty, the manufactured home
itself needs to be a newerstyle.
So I believe it's either 1990 or1991.
Can't exactly remember thecutoff date, but it has to meet
the manufactured home advantagerequirements to be able to fund
a manufactured home period.
(05:27):
If it is an older manufacturedhome, then this 3 percent down
home ready option is not anoption.
It is for primary residencesonly.
And like all conventional loans,it is per the matrix a minimum
620 credit score.
(05:49):
However, please beware that thatdoes not mean that if the
borrower has a 620 credit scorethat they're automatically going
to qualify.
You would need to get your DUapproved eligible for this
program option.
Now it does state in the generalhome ready guidelines that
(06:17):
manual underwriting may be anoption.
However, that is going to dependon the actual investors to see
if the investors are acceptingmanual underwriting on these
files or they have an overlaythat would not allow it.
I haven't been able to find oneto do it.
(06:37):
That's why I mentioned.
Guideline says it, but there maybe overlays where the investors
will not do it.
The HomeReady is also forpurchases and rate and term
refinances only.
No cash out refinances ever,because remember this is an
affordable lending option and itis meant for home ownership to
(07:03):
buy a home or allow you to stayin the home by lowering the rate
and let you take advantage ofthe rate and term, but
definitely not to allow you tocash out any money at these
subsidized rates.
Very important to note for arate and term refi.
(07:25):
The loan being refinanced needsto be owned by Fannie Mae.
Needs to be a Fannie Mae loan.
You can't write in term, refi anFHA loan into this product or a
Freddie Mac loan or USDA anyother type of loan into this
Fannie Mae product.
It can only be Fannie Mae.
(07:46):
to Fannie Mae and per the FannieMae guidelines, borrowers may
have up to two financeproperties and still qualify for
a home ready so they could havetheir one property they may be
leaving and this property thatthey're buying would be two
(08:08):
finance properties.
So let's get into sometransaction details here.
So I did mention maximum 97percent LTV.
However, maximum CLTV of 105%When the first which home ready
(08:34):
loan is being combined with acommunity second.
So I would tell you to go checkthe guidelines for this product
and then check the investoroverlays for using community
seconds.
Cause there are a couple of ourinvestors that will allow it.
You just have to follow theirand their specific instructions
(08:56):
on how to combine it.
With the home ready.
So that is a good option foryour buyers that are low on the
funds, right?
Need that community second.
This is a way to do arms.
Adjustable rate mortgages arerestricted to 5, 7 and 10 year
(09:17):
arms only.
So it can either be a arm that'sfixed for 5 years and then
becomes an adjustable ratemortgage.
one fixed for seven years andthen becomes an adjustable rate
or one fixed for 10 years andthen becomes an adjustable rate.
They do not accept three year,one year, or six month arms.
Please note that there is amaximum loan to value of 95
(09:38):
percent if you have a nonoccupant co borrower.
So that is one of the coolthings on this program.
It does allow non occupant coborrowers.
However, again, They do thenreduce the LTV to 95 from the
maximum 97.
Now here's some pretty cooldeals.
(10:00):
If it's a one unit propertypurchase, the borrower is not
required to come in with anymoney from their own personal
funds, if gift or grant fundsare being used for what would
be.
Their down payment and theirclosing costs.
(10:21):
You know, technically you couldhave the cashless transaction.
If they're getting gift funds orgrant funds to make up that
portion that they would have togive, right?
So that's for a one unitproperty only for a two to four
unit property purchase.
(10:41):
The borrower is required to have3 percent from their own
personal funds, regardless ofall the structuring being done,
give grants, whatever they gotto come in with at least 3% of
the purchase price if it's a twoto four unit property, obviously
because of the investmentcomponent.
(11:03):
Now, home buyer education is notnormally required for this
program, but it is required ifthe borrower is a first time
home buyer.
So, if they happen to be a firsttime home buyer, then you do
have to do the take the homebuyer education.
(11:24):
And also really, reallyinteresting to note gifts,
grants and community seconds andup to 3 percent interest party
contribution is allowable forLTVs of 90 to 97%.
So that's a 3 percent interestedparty contribution, which would
be seller.
(11:46):
For example, realtor, lender.
And then the gift grants andcommunity seconds are not
subject to that 3%.
It's just letting you know thatthey do accept gifts, grants,
and community seconds for LTVsbetween 90.
01 and 97%.
(12:08):
So let's discuss in a little bitmore detail, some of the program
benefits, which I've alreadymentioned in a few of these
slides for.
this home ready program.
So I did mention, I didn'tmention before, but reserve
requirements, whatever they maybe, will be determined by DU.
(12:29):
So there is no set, you got tohave a minimum of one month, you
got to have a minimum of twomonths.
Whatever DU comes up with as arisk assessment for this loan
will determine if the, the,there's going to be a reserve
requirement.
Now I did mention now reducedMI.
(12:51):
So there is a reduced MI factorof 25 percent on 97 percent LTV
instead of the usual 35 percentfor the traditional 97 percent
LTV first time homebuyer option.
What does this mean in realnumbers?
Well, I ran a quote for 97percent LTV Purchase 500, 000
(13:14):
purchase.
It was 485, 000 loan.
Obviously good credit borrowerwith these low MIs, but on the
traditional 3 percent downproduct, the mortgage insurance
was 169.
75.
On the home ready MI product,the MI was 133.
(13:40):
38.
So you're looking at 36 roughly.
36 and 40 cents, roughlydifference, less expensive for
the home ready.
Am I, so that's like free moneyright there.
And on top of that, I ran acouple of quotes scenarios for
(14:02):
that same loan and the 3 percentdown first time home buyer,
which does have to be a firsttime home buyer for the
traditional 3 percent down loanthat came in 7.
125.
At par, whereas the home readyoption came in at 6.
(14:23):
875 at par.
So we're looking at a 0.
25 percent better rate for thehome ready option.
And then I did talk aboutunderwriting flexibilities,
right?
So we do have some innovativeunderwriting flexibilities,
(14:44):
which doesn't just include thefact that it's 3 percent down
and not a first time home buyer,right?
That's the first.
That's the first one.
But where it really getsinteresting for this program is,
for example, rental unit, suchas from an ADU, if it's a one
unit property.
(15:04):
Or from a two to four unitproperty and border income.
So you can use rental unitincome and border income to help
qualify the borrower.
You can also have non occupantborrowers, such as the parents.
(15:24):
There is, and I touched on thisbriefly, there is no minimum
contribution from the borrower'sown funds on one unit
properties.
Again, that's as long as thethree percent down, which would
be the usual requirement, isbeing obtained from gifts.
Or grants, right?
(15:44):
Because you do have to have themoney.
It's not just going tomaterialize on its own, but it
doesn't, you know, there is nominimum borrower contribution as
we see on conventional loans.
And I just did mention the giftor grant can be used to meet the
three percentile requirement.
Now, another great underwritingflexibility for this program is
(16:09):
cash on hand.
Now, how many times Have you hada borrowers?
They usually tend to be thefirst time homebuyers too, that
has money sitting around, right?
Under the mattress, quoteunquote, not yet in the bank.
So I will break it down for youin the next slide because I know
(16:30):
now people read that like, what?
Explain that a little bit more,Jose.
So cash on hand can be used withrestrictions, which I'll cover
in the next slide and sweatequity.
Can be used when working with anapproved eligible program
provider.
Now, what is sweat equity,right?
(16:53):
Sweat equity is the equity thatyou create when you yourself
partake in some of the labor ofthe project of the home.
So let's say your home was likea home ready.
Renovation purchase program,right?
And you are doing some of thework yourself through a, an
(17:17):
approved eligible programprovider that.
Puts together these kinds ofprograms where the whole with a
borrower can participate indoing some of the work
themselves, you know, thepainting, the cleanup, the
simple stuff, but that's a wayto allow you to build sweat
equity so that you, you know,you may not have all the money,
(17:40):
but if you can work.
for it and then get the creditfor it.
Why not?
Right?
And this program does allow youto do that, but you do have to
be working through an approvedeligible program provider for
these types of things wherethey, you know, they'll manage
the construction and let youpartake in the sort equity.
(18:02):
So in our last slide here, we'regoing to break down because I
know everyone's wondering Whatdid he mean by border income can
be used and cash on hand?
Because how many times have,have we not had right border
income on an application andwe've been stumped because it
(18:27):
hasn't been put on a tax return.
So, you know, the common answerwas, I'm sorry, if you don't, if
you're not reporting it on theschedule E on your tax returns.
We can't use it.
Well, if it's home ready, youcan do it right now.
I'm going to break it down therebecause the type's a little
small.
I had to make it a little smallso it would fit and I had to
(18:48):
condense it a little bit.
So border income up to 30percent of the total income that
is being used for the loanqualification can be used if the
border and the border we'retalking about the person that's
renting, right?
(19:10):
So if the border, and I'm goingto run through the different
bullet points, a is notobligated on the mortgage loan
and does not have an ownershipinterest in the property.
Right?
So definitely not anyoneinvolved in the transaction,
right?
So that's the first bulletpoint.
Second bullet point.
(19:30):
If the border has lived with theborrower for the last 12 months,
third point, If the border canprovide, and this is coming
from, they're going to ask theborder for this information, not
the borrower, right?
If the border can provideappropriate documentation to
(19:53):
demonstrate a history of sharedresidency, such as a copy of
their driver's license bill orbank statement that shows the
border's address as being thesame address as the borrower's
address, right?
So that, that's a pretty easyone there.
Just got to prove you livethere.
For the past 12 months.
And if the border also candemonstrate the payment of
(20:16):
rental payments, this iscritical because if it's cash,
they're out of gas, so they gotto demonstrate payment of rental
payments with documents such ascopies.
Of the canceled checks.
It could be obviously transfers,ACH transfers, Venmo, right?
(20:38):
A lot of people use Venmo orother cash apps to send money to
people.
That's that's documentable.
What's not documentable isactual cash, right?
How can you document cash?
That's going to be a tough onebecause they're asking.
the border to provide the proofthat they paid, not the borrower
(21:02):
to provide proof that theyreceived.
See, that's, that's the trickypart there.
So, and then what's, what's,what's another important detail
there is To the bar for the last12 months or at least nine of
the most recent 12 months,provided the rental income is
(21:24):
averaged over 12 months.
So they're giving you a breakthere because, you know,
sometimes maybe the border waspaying with the cash app, but
some months you were there and.
You know, just, he just paid youin person cash or whatever, but
you have at least ninedocumentable transactions.
Well, they'll let you go withit, but then you've got to
(21:47):
average over 12, whatever yourtotal income is received divided
by 12 months.
So you may shortchange yourselfa little bit there, but you're
still going to get the ink, someof the income.
The only issue you're not goingto get the whole 12 months is if
you didn't provide documentationfor all 12 months.
So if you have less than ninemonths.
(22:07):
that are documented, then it'snot going to work.
The minimum threshold is sothat's border income.
Very cool there.
And it didn't say anything inthe guidelines about having to
provide a schedule, you know, ona tax return either.
Right.
(22:28):
So I guess they feel that aslong as the border can provide
the proof of payment, what wasreceived, then the money was
actually received by theborrower.
And the second one and lastpoint we're touching on there is
cash on hand, man, oh man, I canremember all the times this has
(22:50):
been an issue.
However, it's not as easy as itseems, right?
Because in order to be able toqualify, to use that cash on
hand, it really has to be acustomer that that's how they
always handle their business.
Right.
And then.
The bullet points there are thelender must verify that the
(23:11):
borrower customarily uses cashfor expenses, right?
So they provide all theirexpenses of the month.
And you see that it's not paidvia transfers or canceled
checks.
Then you figure they're going tobe paid cash and the borrower
would probably have to provideto you some, you'd have to put
together some kind ofdocumentation there to show you
(23:33):
up.
These are his monthly expensesand this is how he pays him
cash.
The funds that you are going touse for the transaction, the
quote unquote cash on hand mustalready be.
In the bank or in an escrowaccount at the time of
application or no less than 30days prior to closing.
(23:56):
So it's not a total cash on handsituation.
Okay.
I got 5, 000 under my mattress.
Okay.
Yeah, sure.
Let's bring it to closing atleast 30 days prior to closing.
That money has to be depositedeither in a bank account or the
escrow account of the titlecompany.
(24:16):
Doing the deal these 30 daysprior to closing, you're going
to need a letter from theborrower disclosing the source
of the funds and that they arenot borrowed.
And then this last bullet pointis really the one that could
make the cash on hand situationfall apart is that the
(24:39):
borrower's credit report andother verifications should
indicate limited.
Or no use of credit and limitedor no depository relationship
between the borrower and afinancial institution.
So you're really talking aboutthis is for a borrower with very
(25:01):
limited credit.
Maybe you had some nontraditional credit on top of
that.
And that his bank statementsdon't really show a lot of
movement.
You know, in their account,because if they have the account
like that, and then you'retrying to give this, you know,
like a super busy accountshowing he's paying everything
with his bank account.
(25:21):
All of a sudden, you're tryingto use the cash on hand
exception here to home ready.
It's probably not going to work.
It's going to work for theborrower who fits the profile
and who all of theirdocumentation provided also fits
the profile.
And then.
That's something that would beaccepted.
(25:42):
Certainly not for the borrower.
That's just, you know, kept itat home because it was
undeclared income kind of deal,you know, we, we ran into those
every now and then.
That's probably not going towork.
So I've given you a few goodpointers here on HomeReady.
Hopefully enlightened some ofyou on some of the additional
(26:03):
benefits and uses for HomeReady,how you could use it.
Clarified to you all that thisis not a program just for first
time homebuyers.
This is more of an affordablelending based program.
And also remember that if yourborrower's income is above 80
percent, Of the area medianincome, but the census track
(26:26):
shows that isn't a low tomoderate income census track or
a minority census track, thenthe borrower would be eligible
for the program without incomerestrictions.
(26:51):
All right.
Looks like we got a couple ofquestions here.
So one question, I guess we'llbring it up on the screen here
is, Non permanent resident alienthrough Home Ready versus I 10
loan?
No, not exactly.
(27:11):
An I 10 is a different categoryof borrower than the non
permanent resident alien.
The I 10 does not have legalworking status in the United
States versus the non permanentresident alien that does.
have legal working status in theUnited States.
(27:34):
So an ITIN borrower would, youknow, is not going to have a
social security number.
Also, they're only going to havetheir ITIN, which is the number
that they need to be able tofile their tax returns because,
you know, They're working hereeither through their own
employment or some type ofemployment, right?
So they are working here.
(27:55):
They just don't have a thedocument to show that they're
able to legally work here.
The ITM borrower also isrequired to have U.
S.
based credit, just like the nonpermit resident alien.
So they're going to have toqualify for the income also of
whatever program type you'reputting in through, but they're
(28:17):
not the same type of borrower.
Because again, the non permanentresident alien can qualify as
long as they have the credit andthe income and the work
authorization, they can qualifyfor any program that any us
national borrower, be theycitizen or permanent resident.
Can qualify for.
So typically they can qualifyfor all the same programs versus
(28:40):
the ITIN that is only canqualify for only the ITIN
programs, which are veryspecific in nature.
Let's see here.
Another question.
Community seconds has to bereturned when home is sold or
refinanced.
Really can't answer that broadof a question because it really
depends on the communitysetting.
(29:02):
Right.
There's forgivable options, andthen there's repayable options,
just like when we have our downpayment assistance training that
we do, that we combine with anFHA loan or USDA, which is more
of a national based option.
Those are both forgivable orrepayable depending on the
program selected.
(29:25):
But the main thing to note onthat is that you have to really
look to the investor to see ifthey.
Allow it in, in their overlaysbecause Fannie Mae does allow
it, but that doesn't necessarilymean that every investor that we
do business with will allow it.
(29:48):
All right.
Well, no more questions.
I appreciate everybody tuningin.
Remember we do this at 7 PMEastern, every Tuesday,
Wednesday, and Thursday evening,where we go through a new loan
officer training topic.
So we will see you all tomorrow,7 PM Eastern for the next
episode of the loan officertraining series with the
mortgage calculator.
Have a great night, everyone.
That's okay, Ronnie.
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