source:
  type: guide
  id: fnma-sel-b5-6-02
  authority: Fannie Mae Selling Guide B5-6-02 — HomeReady Mortgage Underwriting Methods
    and Requirements
  description: Fannie Mae Selling Guide B5-6-02 — HomeReady Mortgage Underwriting
    Methods and Requirements.
  coverage_tier: operative
obligations:
- id: fnma-sel-b5-6-02-full
  canonical_id: fnma-sel-b5-6-02-full
  section: Fannie Mae Selling Guide B5-6-02 — HomeReady Mortgage Underwriting Methods
    and Requirements
  type: do
  tags:
  - regulator-direct
  - fnma
  - selling-guide
  - corpus-expansion
  - tier-operative
  primary_source:
    tier: 1
    authority: Fannie Mae Selling Guide B5-6-02 — HomeReady Mortgage Underwriting
      Methods and Requirements
    source_class: fnma-guide
    source_url: https://singlefamily.fanniemae.com/media/document/pdf/selling-guide
    snapshot_id: 5f7b8b79da595d76
    fetched_at: '2026-05-25T14:09:57Z'
    content_hash: sha256:98cf85a02861bbe84914a0e339b327c8fc131869a8a573882007bbeea60c5701
    paragraph_quote: 'B5-6-02, HomeReady Mortgage Underwriting Methods and Requirements
      (11/05/2025) Introduction This topic contains information about HomeReady mortgage
      loans, including: Underwriting Options Minimum Borrower Contribution for Purchase
      Transactions Non-Occupant Borrowers Rental Income from the Subject Property
      Boarder Income Cash-on-Hand Sweat Equity Minimum Reserve Requirements Multiple
      Financed Properties Borrowers with Low Credit Scores: Manual Underwriting Only
      Underwriting Options HomeReady mortgage loans can be underwritten with DU or
      may be manually underwritten. The maximum LTV ratio is lower for manually underwritten
      transactions versus those underwritten in DU (95% versus 97% for one- unit principal
      residences). As a reminder, the limited waiver of representations and warranties
      typically granted for loans underwritten with DU does not apply to manually
      underwritten loans. For HomeReady mortgage loans that are underwritten through
      DU, the lender must enter data in the online loan application, identify the
      loan as a community lending mortgage, and select the HomeReady product. If the
      lender does not select HomeReady as the community lending product, DU will provide
      a message when the total qualifying income entered in DU appears to be within
      the applicable AMI limits for the property’s location. The lender must then
      select the HomeReady product and resubmit the loan caseﬁle to help determine
      if the loan meets all of the HomeReady requirements (assuming the lender wants
      to sell the loan to Fannie Mae as a HomeReady mortgage). Published May 6, 2026
      797 Minimum Borrower Contribution for Purchase Transactions The following table
      describes the minimum borrower contribution requirements (excluding loans with
      grants). LTV, CLTV, or HCLTV Ratio Minimum Borrower Contribution Requirement
      from Borrower''s Own Funds 80% or less One- to four-unit principal residence
      A minimum borrower contribution from the borrower''s own funds is not required.
      Greater than 80% One-unit principal residence A minimum borrower contribution
      from the borrower''s own funds in not required. Two- to four-unit principal
      residence The borrower must make a 3% minimum contribution from their own funds
      unless there is any type of grant. Note: If a grant or lender-funded grant is
      being provided, see B3-4.3-06, Grants and Lender Contributions for additional
      borrower contribution requirements. No minimum contribution is required in connection
      with a limited cash-out reﬁnance transaction. Non-Occupant Borrowers Non-occupant
      borrowers are permitted on HomeReady mortgages. See B2-2-04, Guarantors, Co-Signers,
      or Non- Occupant Borrowers on the Subject Transaction, for the eligibility requirements
      that apply. Rental Income from the Subject Property Rental income is an acceptable
      source of qualifying income in the following instances: one-unit principal residence
      with an accessory unit. See B4-1.3-05, Improvements Section of the Appraisal
      Report, for additional details related to acceptable accessory units; two- to
      four-unit principal residence properties. See B3-3.8-01, Rental Income, for
      calculation and documentation of rental income used for qualifying purposes.
      Boarder Income The rental payments that any borrower receives from one or more
      individuals who reside with the borrower (who may or may not be related to the
      borrower) may be considered as acceptable stable income. This applies for a
      one-unit property in an amount up to 30% of the total gross income that is used
      to qualify the borrower for Published May 6, 2026 798 the mortgage if the boarder
      is not obligated on the mortgage loan and does not have an ownership interest
      in the property; has lived with the borrower for the last 12 months; can provide
      appropriate documentation to demonstrate a history of shared residency (such
      as a copy of a driver’s license, bill, or bank statement that shows the boarder’s
      address as being the same as the borrower’s address); and can demonstrate the
      payment of rental payments (such as with copies of canceled checks) to the borrower
      for the last 12 months, or at least 9 of the most recent 12 months provided
      the rental income is averaged over a 12–month period. Payment of rent by the
      boarder directly to a third party is not acceptable. Cash-on-Hand Lenders may
      deliver purchase money mortgages for one-unit properties with cash-on-hand as
      an acceptable source of funds for the borrower’s down payment, funds for closing
      costs, and prepaid items. Note: Cash-on-hand may not be used to fund the borrower’s
      reserve requirement, if applicable. The lender must verify and document the
      following with respect to the cash-on-hand funds: The borrower customarily uses
      cash for expenses, and the amount of funds saved is consistent with the borrower’s
      previous payment practices. The lender must verify that funds for the down payment
      and closing costs exist in a ﬁnancial institution account or an acceptable escrow
      account. Funds must be on deposit at the time of application, or no less than
      30 days prior to closing. The lender must obtain a written statement from the
      borrower that discloses the source of funds and states that the funds have not
      been borrowed. The borrower’s credit report and other veriﬁcations should indicate
      limited or no use of credit and limited or no depository relationship between
      the borrower and a ﬁnancial institution. Sweat Equity Fannie Mae considers sweat
      equity an acceptable source of funds for HomeReady loans when the borrower participates
      in an aﬀordable housing purchase program run by an eligible provider. Sweat
      equity program providers must be a nonproﬁt organization exempt from taxation
      under Section 501(c)(3) of the IRS code with a demonstrated history of aﬀordable
      housing construction and experience in managing volunteers. Sweat equity can
      only be applied towards the down payment, and the borrower must comply with
      the requirements in Minimum Borrower Contribution for Purchase Transactions.
      The following table provides the maximum sweat equity amount and LTV ratio requirements
      based on property type. Published May 6, 2026 799 Property Type Maximum Sweat
      Equity Maximum LTV One-unit residence None 95% Two-to four-unit residence 2%
      of the lesser of the purchase price or appraised value Refer to the Eligibility
      Matrix for maximum LTV ratios The lender must document the loan is originated
      under a speciﬁc lending program. The value attributed to sweat equity must be
      based on the hours of work performed. The following table provides instructions
      for determining the contributory value of sweat equity. Step Determining the
      Value of Sweat Equity 1. • The hours of work to be performed and the hourly
      rate established by the sweat equity program provider must be fully documented
      in an agreement between the borrower and the provider. • The hourly rate must
      conform with the national or state value of volunteer time per hour. 2. The
      hours of work performed each day must be recorded in a log managed by the sweat
      equity program provider. The log must include all of the following: • program
      name, • borrower name, • work date(s), • time in/out, • number of hours, • volunteer
      worker name, • work location and activity, and • supervisory approval. Note:
      The hours of work performed must be completed before the loan is closed. 3.
      The contributory value of the sweat equity is calculated by multiplying the
      total number of hours of work performed by the hourly rate. Example: 500 hours
      worked x $20 per hour = $10,000 4. The lender must review the agreement and
      log from the sweat equity program provider to validate the contributory value
      of the sweat equity applied towards the down payment. All documentation must
      be retained in the loan ﬁle. Published May 6, 2026 800 Minimum Reserve Requirements
      For manually underwritten loans, the reserve requirements are documented in
      the Eligibility Matrix. For DU loan caseﬁles, DU will determine the reserve
      requirement. Multiple Financed Properties The occupant borrower may not have
      more than two ﬁnanced properties. See B2-2-03, Multiple Financed Properties
      for the Same Borrower, for the requirements. Borrowers with Low Credit Scores:
      Manual Underwriting Only For manually underwritten HomeReady mortgage loans
      secured by one-unit properties, if the loan-level credit score is less than
      the minimum credit score required for a HomeReady mortgage, the loan may still
      be eligible for purchase by Fannie Mae if the following requirements are met:
      The credit report indicates that the borrower’s credit score is low due to an
      insuﬃcient traditional credit history (as documented by reason codes on the
      credit report that indicate a lack of credit accounts, accounts not opened long
      enough, lack of usage, etc., as reasons for the low credit score). If the borrower’s
      credit score is low due to derogatory credit or if none of the reason codes
      noted above appear on the credit report, then the minimum credit score for the
      transaction must be met (per the Eligibility Matrix). The lender must supplement
      the traditional credit ﬁle (referred to as a “thin ﬁle”) with the development
      of an acceptable nontraditional credit proﬁle in accordance with Section B3–5.4,
      Nontraditional Credit History. The lender must deliver the borrower’s credit
      score (even if below the minimum required) along with SFC 818 at loan delivery
      to identify HomeReady mortgage loans that have borrowers with thin ﬁles. Note:
      Special Feature Code 818 should only be used to indicate a “thin ﬁle” HomeReady
      mortgage loan. Recent Related Announcements The table below provides reference
      to recently issued Announcements that are related to this topic. Announcements
      and Release Notes Issue Date Announcement SEL-2025-09 November 05, 2025 Announcement
      SEL-2024-04 June 05, 2024 Announcement SEL-2023-02 March 01, 2023 Published
      May 6, 2026 801 Announcements and Release Notes Issue Date Announcement SEL-2022-10
      December 14, 2022 Announcement SEL-2022-09 October 05, 2022 Announcement SEL-2022-07
      August 03, 2022 Announcement SEL-2019-06 July 03, 2019 Announcement SEL-2019-03
      April 03, 2019'
  judgment: false
