Fannie Mae updates HomeReady, provides temporary $2,500 credit

Fannie Mae has announced updates to its HomeReady product, including a temporary $2,500 credit for very low-income purchase borrowers to use for down payment and closing costs. 

Another step the government-sponsored enterprise took was to enhance the best efforts commitments on HomeReady loans. It allows lenders to lock in margins and reduce hedging costs. 

The enterprise said that the new features “offer increased access to homeownership.” 

Regarding the loan-level price adjustment credit, Fannie Mae wrote in a lender letter released on Wednesday that it will be effective for whole loans purchased “on or after Mar. 1, 2024, to Feb. 28, 2025, and loans delivered into MBS with issue dates on or after Mar. 1, 2024, to Feb. 1, 2025.”

According to Fannie Mae, the initiative aims to “continue to support homeownership opportunities for creditworthy very low-income borrowers” by addressing “some of the barriers to entry” to the market.   

To be eligible for the credit, borrowers need a qualifying income less than or equal to 50% of the applicable area median income limit for the subject property’s location. 

Lenders will provide the credit to the borrower and be reimbursed by Fannie Mae through the standard LLPA credit process. The credit must be provided through the transaction, such as being applied to down payment and closing costs, including escrows and mortgage insurance premiums. 

Per the rules, the credit may be first used to satisfy the 3% down payment required in one-unit properties or two- to four-unit properties with loan-to-value ratios less than or equal to 80%.

HomeReady loan updates also include best efforts commitments program, in which lenders can take out commitments at the time of rate-lock without paying a pair-off fee if the loan doesn’t close. 

Best efforts commitments on HomeReady loans will receive better pricing than others. The enhanced pricing will be similar to mandatory commitments – when lenders pay a fee if the loan doesn’t close. Fannie Mae said the changes are effective for commitments
entered into on or after Jan. 24, 2024.

The GSE explained that “lenders can lock in margins, reduce hedging costs, and take advantage of pricing similar to a mandatory commitment.” 

Ultimately, “the enhanced pricing and certainty of HomeReady makes it possible for lenders to pass these benefits on to borrowers.”