In a significant move to assist low-income homebuyers, Fannie Mae has introduced a $2,500 credit designed to alleviate the financial burden of down payments and closing costs, known to be major hurdles on the path to homeownership. This initiative is part of the HomeReady mortgage program and is aimed at making homeownership more accessible for those who qualify. Here’s what you need to know about this opportunity, including eligibility criteria and how to apply.

Eligibility for the $2,500 Homebuying Credit

This special offer is integrated within Fannie Mae’s HomeReady mortgage, a product that caters to buyers with moderate incomes by offering more lenient underwriting criteria compared to traditional loans. To qualify for the $2,500 credit, applicants must meet specific requirements:

  • Income Limitations: The credit is targeted at “very low-income purchase borrowers,” defined as individuals or families earning 50% or less of the Area Median Income (AMI) for the location of the prospective property. The HomeReady program itself is available to those earning 80% or less of the AMI. Potential buyers can determine their eligibility through Fannie Mae’s area median income lookup tool.
  • Down Payment: A minimum down payment of 3% is required for HomeReady mortgages, slightly lower than the 3.5% needed for FHA loans. The $2,500 credit can be applied towards this down payment.
  • Credit Score Requirements: A minimum FICO score of 620 is necessary to qualify for a HomeReady loan. Participating lenders may also consider a borrower’s history of on-time rental payments as part of the qualification process.
  • Mortgage Insurance: Borrowers must obtain mortgage insurance if the down payment is below 20%, though premiums decrease as the loan-to-value ratio improves and are eliminated once the borrower achieves 80% equity.
  • Buyer Status: Both repeat and first-time buyers are eligible for HomeReady mortgages. However, if all loan applicants are first-time buyers, at least one must complete a homeownership education course.

How to Apply for the $2,500 Credit

To take advantage of this credit, eligible buyers cannot apply directly through Fannie Mae but must go through a lender that offers HomeReady loans. Here are steps to follow:

  • Find a Participating Lender: Since most mortgage lenders offer HomeReady loans, confirm with your loan officer if they participate in the program before proceeding with the preapproval.
  • Get Preapproved: It’s advisable to seek preapprovals from multiple lenders to compare terms and ensure you’re getting the best deal.
  • Redeem the Credit: Upon selecting a lender and confirming your eligibility, they will apply the $2,500 credit towards your down payment and closing costs, effectively reducing the total cash needed at closing.

The credit is funded by Fannie Mae through loan-level price adjustments (LLPAs) reimbursed to the lender, meaning it directly benefits the borrower without additional costs to the lender.

This temporary credit is available for HomeReady mortgage loans delivered after March 1, up to February 2025. As this program is set to expire in early 2025, interested homebuyers should act promptly to take advantage of this opportunity to reduce their homebuying expenses.