HomeReady® Mortgage: An Affordable Option for Serious Gen Z Homebuyers

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Generation Z is, no doubt, the next bloodline that will keep the housing market alive. Recent surveys have suggested that there’s an increasing number of credit-eligible individuals from this generation taking out mortgages compared with other forms of debt. For someone who’s young and planning to buy his or her first home, taking a HomeReady® mortgage can be an affordable option.

Why first-time homebuyers should consider a HomeReady® mortgage?

Fannie Mae created HomeReady® to make homeownership much more affordable for today’s creditworthy first-time homebuyers. Low-income Gen Z homebuyers taking out a HomeReady® mortgage can put a down payment for as little as 3 percent. For example, using a 700 credit score, a homebuyer considering a 30-year fixed-rate for a $200,000 purchase price only needs $6,000 for a down payment. HomeReady® has several benefits that are not available in Federal Housing Administration loans. Below are the noteworthy benefits of taking a HomeReady® mortgage:

  • Borrowers have an option to cancel the affordable mortgage insurance once they have built enough home equity, generally when the loan balance drops below 80 percent Loan-to-Value (LTV) ratio (restrictions may apply). In the long run, borrowers may start making lower monthly mortgage payments.
  • Borrowers can pay down payment and closing costs using gifts, grants, or Community Seconds.
  • Parents can provide help as co-borrowers to pay for the loan even if they are not expected to live in the home that will be purchased.     
  • Lenders may immediately order an appraisal to expedite the loan application.
  • Borrowers with 90-97 percent LTV ratios will have a reduced mortgage insurance coverage requirement.  

How to qualify for a HomeReady® mortgage?

Because HomeReady® mortgage expects to benefit the majority of first-time homebuyers, Fannie Mae requires at least one borrower on each purchase transaction to undergo a free interactive online homeownership education and secure a Certificate of Completion to help them make sound decisions in the home purchasing process.

While the HomeReady® requires a minimum credit score of 620, first-time homebuyers may get better pricing if they have a score of 680 and above. So, potential borrowers may find it ideal to improve their credit score before taking out a mortgage. Borrowers may use Fannie Mae’s updated Area Median Income Lookup Tool to find out if their income doesn’t exceed the average earning for a particular area.

Most lenders offer HomeReady® mortgage options. It is one of the most affordable mortgage options in the market for Gen Z homebuyers who are looking forward to fulfilling their dream of becoming a homeowner. However, some lenders could even offer a much more flexible mortgage arrangement depending on the financial situation of the borrower.

Often referred to as the “throwback generation,” studies have shown that Gen Z members are very cautious of having debts or prefer to completely avoid it. Most homebuyers from this generation may want to consider HomeReady® to fulfill their American dream of homeownership, especially if they don’t have enough finances or they can expect financial assistance from their parents.