Affordable Mortgage Program Income Change

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Income cap limits to drop for HomeReady and HomePossible. These 2 Conventional home loan programs help moderate income home buyers.  Lower interest rates and reduced mortgage insurance costs are hallmark benefits of each affordable home loan product. 

HomeReady & HomePossible Change Max Income Limits

Prior to the change, both programs had a tiered income cap system.  In mortgage lending, an income cap is an income amount borrower’s gross income cannot exceed in order to use the program.

Pre-change, income caps for these 2 loans equaled one of the following:

  • 100% of the area’s median income OR
  • No income cap existed

The specific limit applied depended on a property’s location.   In either case, when a borrower’s gross income exceeded the cap, borrowers did not qualify for these loan programs.

As of July 20th, 2019 Fannie Mae is changing income cap limits for their HomeReady program.  Similarly, as of July 28th, 2019 Freddie Mac is adjusting it’s income cap limits for their HomePossible program.

After each investor’s respective change date, HomeReady (Fannie Mae) and HomePossible (Freddie Mac) both require income caps equal 80% of an area’s median income across the board. 100% of median income or unlimited caps both no longer exist.

Impact of HomeReady & HomePossible Income Cap Change

While median income still varies across different census tracts, max income caps will all be set to a flat percentage.  In all areas, borrowers must have income does not exceed 80% of their area’s median income.

Primarily, the noticeable difference for both programs is the elimination of the100% of area median income limits.   Additionally, neither program is continuing the unlimited income limit that existed in certain areas prior to the change.

Case Study on Impact of Changes

For example, consider the following hypothetical; scenario:

  • Borrower’s gross annual income equals $65,000/year
  • Median Income in area borrower is buying in is $70,000/year
  • Pre-change HomeReady & HomePossible set income cap at 100% of median income for this area

Prior to the change, this borrower would be eligible for both HomeReady and HomePossible based on income caps.

After the change described above the income cap for this borrower’s transaction are $56,000 making them ineligible for both HomeReady and HomePossible.

By Jeremy House


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