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A Simple Guide to Home Possible Loans from Freddie Mac

Home Possible Loans
Home Possible Loans

Freddie Mac’s Home Possible® mortgage is designed to help low- and moderate-income households, as well as first-time home buyers, repeat buyers, and those looking to refinance, achieve the dream of homeownership. This mortgage program requires a down payment of only 3%, making it an affordable option for many people.

In addition to offering lower mortgage rates to eligible home buyers, Home Possible also subsidizes costs, helping homeowners pay less to buy and own property than the average U.S. home buyer. It’s worth noting that higher-income households may also be eligible for the Home Possible program.

Who Is Eligible for the Freddie Mac Home Possible Mortgage?

To qualify for a Home Possible mortgage, which is a low down payment option offered by Freddie Mac, there are a few eligibility requirements that must be met. Firstly, the home being financed must be a primary residence and cannot be used as a second home, rental property, or investment. At least one person listed on the mortgage must also live in the home.

The property must be a single-family residence or multi-unit home, including standalone homes, attached homes (such as townhomes or rowhomes), condos, and certain manufactured homes. In order to meet conventional mortgage standards, the loan must fall within conforming loan limits, have a 15 or 30 year amortization period, and use a fixed or adjustable-rate structure.

The down payment must be at least 3% of the purchase price and can be sourced from a variety of sources, including gifts, grants, employer assistance programs, second mortgages, and sweat equity. In terms of income, applicants must be a low- or moderate-income household and cannot exceed 80% of the area median income.

It’s worth noting that Home Possible is not available to individuals who owe money on more than one other mortgaged property, although there are no restrictions on commercial property investments. To be approved, applicants must also have a credit score of 660 or higher (680 for adjustable-rate mortgages and manufactured homes) and first-time home buyers must complete a homeownership education course.

Home Possible Mortgage Rates and Mortgage Insurance

As an affordable mortgage program, Home Possible offers lower mortgage rates to eligible home buyers compared to the general population. These rates can be as much as 0.25 percentage points lower than current rates, and buyers with high credit scores may even receive discounts of 0.5 percentage points.

In addition to lower mortgage rates, Home Possible also subsidizes private mortgage insurance (PMI) for eligible buyers. This can result in savings of up to 30 basis points for first-time home buyers, which can translate to a reduction in annual payments of $600 per $100,000 borrowed compared to what other first-time buyers might pay. Overall, the combination of lower mortgage rates and subsidies on PMI can help to make homes more affordable for Home Possible buyers.

Home Possible Income Limits

Low-to-moderate income is defined by Freddie Mac as earning less income annually compared to your nearest neighbors. Specifically, eligible home buyers may not earn more than 80% of the typical household income for the census tract in which their new home is located. This information can be found on the Freddie Mac website. Home Possible has income limits that vary by neighborhood and offers a range of benefits to eligible buyers, including access to 3% down payment mortgages, reduced interest rates, and lower monthly payments. These benefits can help make homeownership more accessible and affordable for low- and moderate-income households.

Alternatives to the Home Possible Mortgage

Home Possible is a low down payment mortgage option offered by Freddie Mac that provides low mortgage rates and reduced mortgage insurance premiums to first-time home buyers and other homeowners. If you are considering a low down payment mortgage, there are several other options available to you as well, including:

  • HomeReady: A 3% down payment mortgage offered by Fannie Mae that allows for lower credit scores.
  • Conventional 97: A 3% down payment mortgage offered by either Fannie Mae or Freddie Mac, best suited for buyers with higher credit scores and income.
  • FHA mortgage: A 3.5% down payment mortgage backed by the Federal Housing Administration, ideal for buyers with lower credit scores and those looking to purchase 2-4 unit homes.
  • USDA mortgage: A 0% down payment mortgage offered by the U.S. Department of Agriculture, available in lower-density areas to home buyers with modest income.
  • VA mortgage: A 0% down payment mortgage offered by the Department of Veterans Affairs, available to active-duty military members, veterans, and surviving spouses.
  • HomePath®: A low down payment program offered by Fannie Mae for buyers interested in purchasing foreclosed homes directly from the company.

Each of these options has its own specific eligibility requirements and features, so it is important to research and compare them to determine which one may be the best fit for your needs.

Home Possible vs HomeReady

Compared to Fannie Mae’s HomeReady mortgage, Freddie Mac’s Home Possible has slightly higher credit score minimums and income limitations. It is also not possible for home buyers to use income from boarders or accessory dwelling units (ADUs) in their application for a Home Possible mortgage.

Both programs have a minimum down payment of 3% and offer discounts on private mortgage insurance (PMI) for eligible buyers. However, Home Possible requires a minimum credit score of 660, while HomeReady’s minimum credit score is 620. Both programs are available to first-time home buyers and have income limitations, but HomeReady allows the inclusion of boarder and ADU income in the application.

Key Details About Home Possible Program

Home Possible is a mortgage program offered by Freddie Mac that is designed to help low- and moderate-income households achieve homeownership. Here are some key details about the program:

  • The minimum credit score for Home Possible is 660 for purchases of a single-family home using a fixed-rate mortgage. If you are using an adjustable-rate mortgage, the minimum credit score is 680. For multi-unit properties, the minimum credit score may be 700.
  • Home Possible is available to home buyers with no credit score. In these cases, mortgage lenders can approve your loan application using alternative payment history.
  • The minimum down payment for Home Possible is 3%. This money can come from any eligible source, including savings, cash gifts, employer benefits, and unsecured loans.
  • There is no explicit debt-to-income maximum for Home Possible. The program considers income, debt, credit history, and other factors in determining mortgage approval. If your monthly debts exceed 43 cents for every dollar earned, you may be eligible for other low down payment mortgage options.
  • Home Possible is available to first-time home buyers, repeat buyers, and refinancing households.
  • Compared to Fannie Mae’s HomeReady mortgage, Home Possible requires higher credit scores and allows home buyers to get their down payment money from a third-party source. HomeReady requires buyers to bring at least 3% of their own money to the purchase.
  • Home Possible allows home buyers to use cash gifts for a down payment.
  • Home Possible is available for the purchase of 2-unit, 3-unit, and 4-unit homes, as long as the buyer will be living in one of the units.
  • Adjustable-rate mortgages are allowed with Home Possible, but there is a minimum credit score requirement of 680.
  • Home Possible is available to home buyers without a credit score.
  • Home buyers do not apply for a Home Possible mortgage directly with Freddie Mac. Instead, they can apply with any mortgage lender and verify their eligibility for the program.
  • The minimum down payment requirement for Home Possible is 3%, not 20%.
  • Home Possible mortgage rates are available as part of a 3-minute pre-approval process.

Written by Manoj Kumar

A tech and gaming aficionado, Manoj enjoys the small pleasures of life. He comes with over 10 years of experience in digital space with nearly 2 years of experience in the entertainment news section.

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