One of the hallmarks of the most recent housing bust, which took home values down as much as 50% in places like Florida and Nevada, was how little some people had to make as a down payment. In some cases, the down payments were zero. As home prices plummeted, people’s houses became worth less than their mortgages, which was termed as being “under water.” And many of these owners defaulted.
Very low down payments are back, as little as 3%, a sign, along with high home prices, of a new bubble.
HomeReady, the mortgage option that allows borrowers to qualify with income from non-borrower household members, is getting an upgrade.
That’s according to government-sponsored mortgage titan Fannie Mae, who announced the following features in a release on Tuesday, the day the changes went into effect. Among them, occupant borrowers on a HomeReady loan can own other residential properties, and there will no longer be a requirement for homeownership education for limited cash-out refinance transactions.
Also:
Targeting borrowers in areas the U.S. Census Bureau deemed as low-income, Fannie Mae launched the HomeReady program in fall 2015. The loan was notable for the fact that it factors non-borrower household members’ incomes into applicants’ eligibility. Applications can include borrowers who aren’t currently living in the home, such as parents, as well as rental income the borrower may earn from renting a basement apartment, for instance. HomeReady also helps qualified borrowers purchase a home with a down payment of as little as 3% down.
The “homeowner education” does not seem to be a hurdle to irresponsible borrowing any more than drug education keeps people from using illegal or dangerous drugs. The
The government is usually well-meaning when it creates programs like this. However, in the spirit of helping people, it often undermines their finances. This new program smells of that. All the housing market needs is a new increase in mortgage defaults.
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