HomeReady Mortgage Opinions

[Brian Gorman]

Hello everyone,

I just went through the process to get preapproved for my first house. I recently graduated from the University of Minnesota and have been working full time 8 months and have been able to accrue around 10k in liquid cash and around 4k in mutual funds which I don't plan to tap into, but can be accounted for in an emergency situation.

I was approved for 180k but plan to buy in the 120-150k range if possible. I was presented with the option to do a HomeReady mortgage that would allow me to put 3% down and still maintain a low 3.75% fixed APR. I am somewhat concerned about the insurance that is required when holding the loan. I am by no means about to pull the trigger on a house tomorrow, but I am starting my search and wanted to get opinions on this loan as well as see if anyone else has other ideas that may be better.

The plan for owning the property would be to buy and hold long term. I would take residence in the property, house hack renting out 2 bedrooms to my buddies to cover the base mortgage, and then I would cover any outside expenses and possibly put the extra money down on the principal. I would only look to take residence in the property for 2-3 years then turn it into a full rental to achieve that passive cash flow. I would then repeat the process on a new home with the end goal of accumulating multiple properties.

Below is an email that was sent to me by the mortgage lender I am working with which explains more in depth. Please let me know your opinion and feel free to offer any advice, I am trying to learn as much as possible at this point.

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From the lender:

I wanted to give you some links that explain the HomeReady program. As we talked about earlier, the main benefits of this program are the reduction in mortgage insurance from 30% coverage to 25% (lender jargon), which means your monthly mortgage insurance payment goes from $133.38 to $93.36 on a $150,000 purchase, and the other benefit is being able to put as low as 3% down opposed to the traditional 5%. The down payment does not need to be paid by you either (if you want to look into a gift from a relative, please let me know before you do anything).

I may have forgot to mention that there is a class that needs to be taken by you to qualify for the loan. This is an online class that will take about four hours and it costs $75.

Links:

This is information from Fannie Mae directly, but the program is called HomeReady and there is more information on the web if you want to do more research. They talk a lot about income limits on there, so before you get worried the income limit is $69,280, so you willbe fine.

I also attached an amortization schedule for you based off a $150,000 purchase. Keep in mind this only shows your principal and interest, so this is obviously not indicative of what your monthly mortgage payments would be, which we talked about earlier. The important number to keep in mind here is $117,000. That is when mortgage insurance falls off your account saving you $93.36/month. I highlighted the month that you should expect mortgage insurance to drop, which is month 110 or 9 years and 2 months into the loan.