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By Christine DiGangi / Credit.com
August 27, 2015

Government-sponsored mortgage giant Fannie Mae is starting a new home loan program for low-income borrowers called HomeReady, with the goal of improving creditworthy consumers’ access to affordable mortgages through low down-payment requirements, homeownership education and other specialized underwriting criteria.

The HomeReady program will be available to borrowers in areas designated by the U.S. Census Bureau as low-income, in addition to borrowers who make less than 100% of the area median income in high-minority census tracts and designated natural disaster areas, according to a news release from Fannie Mae.

Perhaps most notable is the new way HomeReady will determine applicants’ debt-to-income ratio: It will include non-borrower household members’ incomes, extending mortgage access to multi-generational households.

“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,” the news release says.

Additionally, applicantions can include incomes from borrowers who will not be living in the homes, such as parents, as well as rental income the borrower may generate from something like renting out a basement apartment. HomeReady can help any qualified borrowers, whether they’re first-time homebuyers or not, to purchase a home with a down payment as low as 3% of the property value. As part of the program requirements, borrowers must complete an online education course that will prepare them for the homebuying process and the homeownership that follows.

The program is supposed to extend homeownership access to low-income consumers, but they still need to have decent credit to qualify (Fannie Mae did not define what it deems creditworthy). Someone with good credit generally makes loan and credit card payments on time, minimizes their debt and credit card balances and applies for new credit only when necessary. A good credit score means your past financial behaviors indicate you’re likely to repay your future loans on time, which makes you more appealing to a potential lender. Good credit also helps you get lower interest rates on loans, which can make a huge difference in what you pay for a mortgage, so regardless of what program you go through to get a mortgage, you want to start the process with as good a credit score as you can manage.

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