HOMEREADY® BY FANNIE MAE | AUGUST, 2016

HomeReady® by Fannie Mae 2

OVERVIEW

Fannie Mae’s enhanced affordable lending product

Designed for creditworthy, low- to moderate-income borrowers, with

expanded eligibility for financing homes in designated low-income, minority,

and disaster-impacted communities

Provides additional benefits to borrowers and specific underwriting

flexibilities

https://www.fanniemae.com/singlefamily/homeready

BORROWER BENEFITS

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• Low Downpayment:

o As low as 3% down for 1-unit purchases

• Flexible Sources of Funds:

o Second liens and gift funds

o Use for downpayment and closing costs

o Option for no minimum contribution of borrowers own funds when certain

criteria are met

• MI Coverage:

o Reduced MI coverage for LTV > 90%

• Homebuyer Education:

o Required to prepare borrowers for homeownership

• First-time homebuyer status not required as compared to FNMA 97% program

LTV Ranges 10-20 Year Terms 21-30 Year Terms

90.01% to 97% 25% 25%

85.01% to 90% 12% 25%

80.01% to 85% 6% 12%

LOCKING AND REGISTERING A LOAN

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When locking or

registering a loan,

HomeReady® will

now populate as

an eligible product

UNDERWRITING GUIDELINES

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General Requirements/Guidelines

• DU only

• Primary residence loans only

• Non-occupant co-borrowers are permitted

• Gifts, grants, and community seconds permitted for cash-to-close

• Borrower not required to provide own funds as required contribution

(1-unit only):

o Gift funds as downpayment require additional criteria

o 2-4 unit purchase requires 3% borrower’s own funds

UNDERWRITING GUIDELINES

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LTV/CLTV/HCLTV Matrix

UNDERWRITING GUIDELINES

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Mortgage Insurance Matrix

Key Difference

• 90.01%-97% bucket:

o Standard product requires 35% coverage for 95.01-97%

o Standard product requires 25-30% coverage for 90.01-95%,

depending on loan term

PROGRAM FEATURES

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• Income eligibility

• Income flexibility

• Subordinate financing

• Homeownership education and housing counseling

INCOME ELIGIBILITY

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Income Limits

• Enforced based on qualifying income of borrowers,

including non-occupant co-borrowers:

o Unlike USDA which enforces limits based on all household members,

and not exclusively qualifying income

• Based on Area Median Income (AMI) according to FHFA

• Census tract used to identify income limits:

o Multiple income limits may apply in one county

• If DU cannot validate address, FIPS (Federal Information Processing

Standard) code can be entered to get accurate assessment

INCOME ELIGIBILITY

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Income Eligibility Resources

• Income eligibility tool:

o https://www.fanniemae.com/content/tool/homeready-income-eligibility-tool

INCOME ELIGIBILITY

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Income Eligibility Resources, continued

INCOME ELIGIBILITY

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Income Eligibility Resources, continued

• Income eligibility by census tract lookup (Excel document)

o https://www.fanniemae.com/content/eligibility_information/homeready-

income-eligibility-lookup.xlsx

INCOME ELIGIBILITY

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DU messages based on income eligibility

• Eligible – submitted as HomeReady®

INCOME ELIGIBILITY

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DU messages based on income eligibility

• Ineligible

• Eligible – not submitted as HomeReady®

INCOME FLEXIBILITY

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Extended-Household Income Flexibility

• Non-Borrower Household Income

• Income earned by adult members of household who are not also loan

applicants:

o Includes adult children, parents, other relatives, domestic partners, and

non-relatives

• Benefit

• Allows for approval with higher DTI – 45.01-50.00%:

o AUS approval not guaranteed

• Requirement

• Amount must meet or exceed 30% of borrower’s qualifying income

• Fully documented:

o Verbal VOE not required for non-borrower

o 4506-T not required for non-borrower

• Intent to Occupy statement – 12 months (FNMA Form 1019 or similar)

INCOME FLEXIBILITY

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HomeReady® Non-Borrower

Household Income Worksheet

and Certification (Fannie Mae

Form 1019)

INCOME FLEXIBILITY

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INCOME FLEXIBILITY

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Extended-Household Income Flexibility

• Other Features:

o Not included in qualifying income

o Does not impact income eligibility limits

o Prior history of shared residency not required

o Unlimited number of household members may contribute

o Not required to be a relative/family member:

Children must be “adult children”

o Legal residency requirements do not apply

o Cannot use boarder or rental income

INCOME FLEXIBILITY

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DU Messaging for Non-Borrower Income

INCOME FLEXIBILITY

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How do I designate “Non-Borrower Income” in Q.AUS?

Under the “Income and Housing” tab, select “Non-Borrower Household

Income” under the “Other Monthly Income” section from the drop-down

as shown below.

INCOME FLEXIBILITY

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Rental Income from Subject Property

• 1-unit primary residence with accessory unit:

o An additional living area independent of the primary dwelling unit,

and includes a fully functioning kitchen and bathroom

• 2-4 unit primary residence:

o Follow regular Fannie Mae guidelines for newly purchased

multi-unit property

***Cannot be used as non-borrower household income***

INCOME FLEXIBILITY

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Boarder Income

• Maximum allowed – 30% of gross qualifying income

• Boarder not required to be a relative

• Requirements:

o 1-unit property

o Boarder is not a loan applicant

o Evidence boarder has lived with applicant for most recent 12 months

o Evidence of rental payments:

Most recent 12 months; OR

9 months from most recent 12 months – calculated over 12 months

Payments to third party not acceptable

***Cannot be used as non-borrower household income***

SUBORDINATE FINANCING

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Non-Community Second Liens

• HELOC or closed-end

• Standard Fannie Mae requirements apply

• Seller-held not permitted

• Underwriter to review and approve secondary financing based on

source and characteristics

• CLTV/HCLTV limited to 97% or less based on transaction purpose

and number of units

SUBORDINATE FINANCING

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Community Second Liens

• CLTV permitted up to 100% for purchase transactions:

o 100% CLTV for 2-4 unit still requires borrower to bring 3% own funds

to closing:

Can be closing costs and pre-paid items

• FAMC required to approve subordinate financing from eligible providers

• Ineligible Terms:

o Resale restrictions due to:

Option agreements;

Local ordinances;

Any other reason or purpose for the restriction

SUBORDINATE FINANCING

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Community Second Liens, continued

• Eligible Providers:

o Federal agency

o Municipality

o State or county

o State or local housing finance agency

o Nonprofit organization

o A regional Federal Home Loan Bank Affordable Housing Program

o Employer:

May permit for requirement of full repayment upon termination

of employment

• Ineligible Providers:

o Seller, or any other interested third party

SUBORDINATE FINANCING

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Community Second Liens, continued

• Documentation Requirements from Lienholder:

o Note

o Deed/security instrument

o Program description

o Any other pertinent documents to identify program details

and characteristics

• Repayment Options:

o Fully amortized

o Temporary deferment – eventually fully amortized

o Full term deferment – except for property sale or refinance prior to maturity

o Forgiven over time

• Deferred Payments:

o 5+ years deferment – no payment required in ratios

o < 5 years – include eventual payment amount

SUBORDINATE FINANCING

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Community Second Liens, continued

• Repayment Restrictions:

o Balloon term – cannot be due and payable prior to lesser of term of

loan or 15 years

o Rate for second cannot exceed 2% above note rate of first lien

o Negative amortization – not permitted; certain exceptions per

guidelines can be made

o Subsidizing the sales price not permitted

o Provider’s share in appreciation in value not permitted

SUBORDINATE FINANCING

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How do I reference a community second in Q.AUS?

While under the “Types, Terms & Property” tab, click on “Subordinate Type”; select

“Community Seconds.” A drop-down will appear for “Community Seconds

Repayment Structure.” Make the appropriate selection.

SUBORDINATE FINANCING

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This checklist provides

FAMC Community

Seconds requirements.

This form is located on

the FAMC website.

HOMEOWNERSHIP EDUCATION

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Homeownership Education and Housing Counseling

• FNMA Selling Guide requirements:

o B2-2-06, Homeownership Education and Housing Counseling

• Required for at least one borrower per loan

• Online course provided by Framework®:

o http://www.frameworkhomeownership.org/

o No exceptions to provider

o $75.00 paid by borrower to Framework®

• No expiration date for certificate

HOMEOWNERSHIP EDUCATION

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Landlord Education

• Required for 2-4 unit subject property in addition to standard course

• At least one borrower per loan must complete

• Conducted by a HUD-approved counseling organization:

o Not offered by Framework®

o Verify at http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm

• Program must use Fannie Mae’s publication Becoming a Landlord: Rewards,

Risks, and Responsibilities:

o If an alternate publication is used, a copy must be provided to and

retained by FAMC

Equal Housing Lender; Franklin American Mortgage Company, 6100 Tower Circle, Suite 600, Franklin, TN 37067. Company NMLS #1599. For mortgage banking professionals only; not authorized for distribution to consumers or third-parties. All info herein is current as of 8/12/2016 and subject to change without notice.

This presentation is made available to trusted partners of Franklin American Mortgage Company and is intended for sales enhancement purposes only. The material present herein is not intended as legal advice nor does it represent the counsel or opinion of Franklin American Mortgage or its employees. Borrowers must qualify in accordance with current Franklin American Mortgage product and program guidelines (login as a registered user at www.franklinamerican.com to view). All attendees should consult their company’s policies, procedures, and/or internal compliance/legal guidelines regarding all regulatory or compliance matters. MKT-15716