Can you use the HomeReady Program to refinance your mortgage?
The HomeReady Program can be used to both buy a home and refinance your mortgage. There are several points to keep in mind if you want to refinance your loan with a HomeReady mortgage.
First, HomeReady can only be used for rate and term refinances. This means only your mortgage rate and the length of your loan can change when you refinance. Your mortgage balance cannot increase and you cannot use the HomeReady Program to do a cash out refinance, which means you receive no proceeds from the loan.
Second, HomeReady is a great refinance option if you have limited equity in your home. If Fannie Mae owns or secures your mortgage, you are only required to have 3% homeowners equity in your property to qualify for the refinance, which means you are eligible for a mortgage with a loan-to-value (LTV) ratio of 97%. For example, if your home is valued at $100,000, you are eligible for a $97,000 mortgage ($100,000 (property value) * 97% (LTV ratio) = $97,000 (loan amount)).
Although Fannie Mae sets the guidelines for HomeReady, you apply for the program with participating lenders. The table below shows leading refinance lenders in your area. We recommend that you contact multiple lenders to understand if they offer the program and to compare mortgage refinance terms. Comparing lender proposals is the best way to save money when you refinance.
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As noted above, you do not apply for the HomeReady Program or mortgages with Fannie Mae but they buy and secure loans from other lenders. When Fannie Mae buys or secures your mortgage you continue making your payment to your current lender or servicer so you may not know that Fannie Mae owns your loan. You can use the Fannie Mae Loan Lookup tool to understand if Fannie Mae owns or secures your mortgage.
The good news is that even if Fannie Mae does not own or secure your current mortgage, you are only required to have 5% homeowners equity to qualify for the refinance, which implies an LTV ratio of 95%. Additionally, the 95% to 97% maximum LTV ratio guideline applies refinances of single unit properties. The maximum LTV ratio for a two unit property is 85% and 75% for a three or four unit property.
This is another important point to highlight about refinancing with a HomeReady mortgage -- multifamily properties with up to four units are eligible for the program, as long as you occupy one of the units. This means that rental income from the units you do not occupy may help you qualify for the mortgage, although you are required to provide certain documentation to verify the income.
You are also eligible for HomeReady if you own another property as long as live in the property you are refinancing through the program. Some high LTV refinance programs only allow you to own one home -- the property you are refinancing -- which means you cannot qualify if you own multiple homes.
Another positive feature about using the HomeReady Program to refinance is that you can use non-traditional income sources to qualify including rental income from boarders and income from a non-occupant co-borrower. For example, if you rent out a room in your home, you can include that income in your loan application as long as you have rented out the room for at least twelve months and can document the income for at least nine of those months. Additionally, boarder income can represent a maximum of 30% of your total income.
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An example of a non-occupant co-borrower is a parent or other relative who does not live in the property but who is on the mortgage. A non-occupant co-borrower with a good credit score, solid monthly income and relatively low monthly debt may help you qualify for a higher mortgage amount.
Additional points to keep in mind if you refinance with a HomeReady mortgage are potential applicant income limits and loan limits. To qualify, you cannot make more than 80% of the area median income (AMI) where the property is located. So if you make too much money, you may be ineligible for the HomeReady program.
Additionally, your mortgage amount cannot be more than the conforming loan limit for the county in which the property is located, which can present a challenge if you have a high loan balance or you live in a more expensive area.
Finally, please note that to be eligible for a HomeReady refinance you usually must be current on your loan and have no late mortgage payments over the past twelve months.
Use the FREEandCLEAR Lender Directory to search over 3,900 lenders and 25 mortgage programs. For example, you can search for top-rated lenders in your state that offer the HomeReady Program.
Sources
"HomeReady Mortgage Product Matrix." Mortgage Products. Fannie Mae, December 7 2019. Web.
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