Fannie Mae’s HomeReady mortgage allows a home buyer to qualify using “boarder income”. What does this mean? Remember our favorite roommates Laverne and Shirley?
Let’s say Laverne and Shirley both have their long time jobs at the beer factory and Laverne is pulling in extra money as a waitress but her credit scores are less than ideal for a mortgage right now. Shirley decides she would really like to buy a house and they both want to continue living together.
With the HomeReady program, Shirley can buy a house and use the “boarder income” from Laverne as income for qualifying. Here’s the scoop:
- Boarder (Laverne) must have lived with the borrower (Shirley) and paid rent directly to the borrower for the last 12 months. NOTE: the rent cannot be in cash – it needs to be a check that can be documented.
- Up to 30% of the rental income from the boarder may be used for qualifying
- Borrower must provide documentation of the rental income paid by the boarder for at least 9 of the last 12 months. Rental income will be averaged over the last 12 months.
- Boarder will need to show documentation that they lived with the borrower (photo id, utility bills, etc.).
- The boarder may not be related to the borrower.
- The boarder’s rent checks may not have been written to a third party.
So if Laverne writes Shirley a check for her portion of the rent over the last 12 months, a lender would look at the last 12 months checks from Lavern and average it over 12 months. So if Laverne only has ten cancelled rent checks, a lender would still average this over 12 months (12 months checks is probably going to be the most ideal). A lender will then take 30% of that average and can use that for income for Shirley to qualify for buying a home.
Laverne, of course, has to live in the new home with Shirley and continue to be a roommate. Laverne would not be obligated to the mortgage nor the title/deed of the property.
HomeReady offers reduced down payment, lower mortgage rates and private mortgage insurance premiums for borrowers with better credit scores and offers flexible underwriting guidelines, such as allowing boarder income. HomeReady is not limited to first time home buyers. Income limits do apply in some areas.