Fannie Mae has announced their new affordable mortgage product called the HomeReady Mortgage.
Under the new guidelines, borrowers will have to complete an online education course which will prepare them for the home buying process and for sustaining their home after purchase. Additionally, income from a non-borrower household member can be used to decide the debt-to-income ratio for the loan, a development which will help multi-generational and extended households obtain affordable mortgages.
Further innovations are that income from non-occupant borrowers will be allowed to increase a borrower’s qualifying income, and first-time and repeat homebuyers can use HomeReady to buy a home with a down payment as low as 3 percent.
Who qualifies for a HomeReady Mortgage? HomeReady will be available to borrowers at any income level for properties in designated low-income census tracts, and to borrowers at or below 100% of area median income (AMI) for properties in high-minority census tracts or designated natural disaster areas. For properties in remaining census tracts, HomeReady borrowers must have an income at or below 80% of AMI. Approximately half of census tracts will be subject to the 100% AMI limit or have no income limit.
But will HomeReady be a success?
According to Zillow, mortgage availability is approaching the pre-housing bubble level (2003).
The problem is not the supply of credit, it is the lack of demand. Since 2007, real median household income and average wage growth have dropped. And the regulation of the mortgage market has made certain types of mortgage more difficult to obtain. Mortgage purchase applications, while up this year, remain at 2013 levels.
Homeownership keeps declining despite The Fed’s zero interest rate policy.
So, it is really a lack of demand problem rather than a mortgage availability.
Fannie’s HomeReady mortgage product may be a success, if enough borrowers show up to lenders. Even with someone else helping to make the mortgage payment, there may still be insufficient interest. But Fannie has lowered the hurdles for potential borrowers.
Near zero deposit rates and lackluster mortgage demand is a recipe for …