Freddie Mac Home Possible: A Comprehensive Guide to Your Dream Home

The Freddie Mac Home Possible® mortgage program is a beacon of hope for very low-to-low-income borrowers who want to transform their dreams of homeownership into reality.

Designed with a focus on flexibility, it presents an array of options for down payments and closing costs, including support from family, employer assistance, and sweat equity, making mortgage loans more accessible. Therefore, it caters to first-time homebuyers and accommodates the unique needs of move-up borrowers and retirees, ensuring a broad spectrum of individuals can benefit from its provisions.

Understanding Home Possible® Mortgages

Understanding Home Possible® Mortgages involves a comprehensive look at the types of properties and mortgages eligible under this program, its purpose and benefits, and the flexibility in financing it provides for low-to-very low-income borrowers.

Eligible Properties and Mortgages:

• Property Types: The Home Possible® program accommodates a variety of property types, including 1-4 unit properties, condos, co-ops, planned-unit developments, and manufactured homes, although certain restrictions apply to manufactured homes.

• Mortgage Types: A wide array of mortgage products are eligible under Home Possible®, including first-lien mortgages, conventional mortgages (both conforming and super-conforming loan amounts), fixed-rate mortgages, adjustable-rate mortgages (ARMs), Community Land Trust mortgages, CHOICEHome® mortgages, CHOICERenovation® mortgages, and GreenCHOICE® mortgages. This diversity ensures that a broad spectrum of borrowing needs can be met, from purchasing newly constructed homes to renovating existing properties.

Program Purpose and Expansion of Customer Base:

• Purpose: Freddie Mac introduced the Home Possible AdvantageSM program to assist low- and moderate-income (LMI) first-time homebuyers by providing them with affordable mortgage options. This initiative underscores Freddie Mac’s commitment to making homeownership more accessible to those who might otherwise be excluded from the housing market due to financial constraints.

• Expansion: For community banks, the Home Possible® program presents an opportunity to expand their customer base into low- and moderate-income communities. By participating in this program, these banks can also access the secondary market, enhancing their liquidity and enabling them to offer more competitive and flexible mortgage products to a broader audience.

Financing Flexibility and Benefits:

• Down Payment and Mortgage Insurance: One of the hallmark features of Home Possible® mortgages is the low down payment requirement—only 3%—making it significantly easier for low- to low-income borrowers to achieve homeownership. Flexible sources for down payments include family contributions, employer assistance programs, secondary financing, and sweat equity. Furthermore, borrowers can cancel their mortgage insurance once they achieve 20% equity in their home, potentially saving thousands of dollars over the life of the loan.

• Additional Financing Properties and Co-borrowers: Borrowers can have additional financed properties, which can be particularly beneficial for investors or those looking to purchase a second home. Moreover, non-occupying co-borrowers can contribute to the borrower’s funds on one-unit properties, providing additional flexibility and support in meeting financial requirements.

• Educational Requirement: The program mandates financial literacy education for borrowers to ensure responsible homeownership. This educational component equips them with the necessary knowledge and skills to manage their finances effectively and sustain their homeownership over the long term.

By offering a range of eligible properties and mortgage types, coupled with significant flexibility in financing and a strong support system through educational requirements, the Home Possible® program is a pivotal initiative in facilitating homeownership for those in low- to very low-income brackets.

Key Features and Benefits

• Loan-to-Value (LTV) Ratios and Down Payment Options:
  • Maximum LTV ratios for Home Possible® mortgages are 97% for 1-unit properties, offering a pathway to homeownership with minimal initial investment.
  • The program supports 105% TLTV with Affordable Seconds® and 97% HTLTV for 1-unit properties, enhancing affordability and flexibility in financing.
  • A hallmark feature is the low down payment requirement of just 3% for qualified very low- to low-income borrowers, making homeownership more accessible.
  • Flexible sources for down payments are allowed, including family contributions, employer-assistance programs, secondary financing, and sweat equity, broadening eligibility and support for borrowers.
• Mortgage Insurance (MI) Benefits:

• • Borrowers can cancel mortgage insurance once the loan balance drops below 80% of the home’s appraised value, provided cancellation criteria are met, potentially saving significant amounts over the loan’s lifetime.

• • MI on 1-unit properties can be canceled under specific conditions, further reducing monthly mortgage payments and enhancing long-term affordability.

• • The program offers reduced mortgage insurance coverage, lowering borrowers’ costs, especially those with LTV ratios above 90%.

• Additional Financial Flexibilities and Support:

• • Home Possible® mortgages allow for additional financed properties and non-occupant co-borrowers on 1-unit properties, offering greater flexibility in meeting financial requirements and supporting investment or multi-generational living arrangements.

• • The program includes capped credit fees that are less than standard for all loans over 80% LTV, making closing costs more manageable for borrowers.

• • Income limits are set to 80% of Area Median Income (AMI), and loan amounts are not geographically limited, ensuring the program effectively serves its target demographic.

• • Eligible properties under the Home Possible® program include a broad range, from 1-4 units to condos, co-ops, and manufactured homes with certain restrictions, accommodating various housing needs and preferences.

Eligibility Criteria

Eligibility Criteria for the Freddie Mac Home Possible®mortgage are structured to cater to low- and moderate-income borrowers, with specific income limits and credit score requirements designed to broaden access to homeownership. Understanding these criteria is crucial for prospective borrowers to determine their qualifications for this mortgage program.

Income and Area Limits

• Income Thresholds:

• • Very Low Income: Borrowers’ qualifying income must not exceed 50% of the county area median income (AMI).
  • Low Income: Qualifying income must be greater than 50% and less than or equal to 80% of county AMI.
    

• Area Designations:

• • Rural Tracts: Defined by FHFA’s “rural area” as part of their Duty to Serve regulation, possibly offering more lenient income limits.

• • High-Cost Areas: Counties designated by FHFA to adjust conforming loan limits above the baseline, potentially allowing for higher income thresholds.

• Special Provisions:

• • No income limits for homes located in underserved areas, broadening eligibility.

• • The borrower’s total annual income cannot exceed 100% of AMI, with allowances for higher percentages in designated high-cost areas.

Credit Score and Financing Flexibility

• Credit Score Requirements:

• • Minimum of 660 for purchase transactions and 680 for no cash-out refinances, ensuring borrowers have a responsible credit history.

• Secondary Financing and Co-borrowers:

• • Allowed secondary financing includes HELOCs, with a TLTV of up to 105%, with eligible Affordable Seconds® when the first lien is a fixed-rate mortgage.

• • Federal agencies and municipal, state, county, or local housing finance nonprofit organizations are eligible providers for secondary financing.

• • Co-borrowers who do not reside in the home can be included for a borrower’s one-unit residence, offering additional support in meeting financial requirements.

Property Ownership

• Borrowers can have another financed property, providing flexibility for investors or those seeking a second home.

This comprehensive approach to eligibility criteria under the Freddie Mac Home Possible® program ensures that many low- and moderate-income individuals and families can achieve homeownership while maintaining responsible lending practices.

Down Payment Options and Assistance

The Freddie Mac Home Possible® mortgage program offers various down payment options and assistance to ensure homeownership is accessible to a broad spectrum of borrowers. Understanding these options can significantly ease the path to acquiring a home.

Down Payment Sources:

• Borrowers have the flexibility to source their down payment from a variety of channels, ensuring inclusivity and accessibility. These sources include:

• • Family Contributions: Financial gifts from family members can be used towards the down payment.

• • Employer-Assistance Programs: Some employers offer programs to assist with down payments as part of their benefits package.

• • Secondary Financing: Borrowers may secure additional loans to cover down payment costs.

• • Sweat Equity: A unique option where the value of personable labor is credited towards the down payment.

• • Other Acceptable Sources: Gifts, grants, cash-on-hand, Affordable Seconds®, proceeds from an unsecured loan, and Employee Assisted Housing (EAH) are recognized sources.

Down Payment Assistance Programs:

• Various assistance programs are available to support borrowers further, often provided by state, county, and city governments. These programs are designed to aid well-qualified individuals ready for homeownership:

• • Grants: Offered to borrowers, these do not require repayment provided the homeowner occupies the residence for a predetermined period.

• • Second Mortgage Loans: These loans typically feature low or zero interest rates, with deferred payments over a certain period. Some may be forgiven over time, easing the financial burden on the homeowner.

• • Tax Credits: These are available to reduce federal income tax, increasing the funds for down payment or closing costs.

Program-Specific Down Payment Requirements:

The Home Possible® program is distinct in its minimal down payment requirement, making it an attractive option for many:

• A down payment as low as 3% is required, making homeownership more attainable for very low- to low-income borrowers.
• Notably, no minimum contribution from the borrower’s funds is required on a purchase transaction for a one-unit property, providing significant flexibility.

By leveraging these down payment options and assistance programs, prospective homeowners can navigate the financial challenges of purchasing a home with greater ease and confidence. The Home Possible® mortgage program’s inclusive approach to down payment sources, coupled with the availability of assistance programs, underscores its commitment to making homeownership accessible to a wide range of borrowers.

Mortgage Insurance and Loan-to-Value Ratios

Understanding the intricacies of mortgage insurance (MI) and loan-to-value (LTV) ratios is crucial in navigating the Freddie Mac Home Possible® mortgage landscape. These components significantly influence the affordability and flexibility of mortgage loans, making them essential considerations for prospective borrowers.

Mortgage Insurance (MI) Details:

• You can cancel MI on 1-unit properties once the loan balance drops below 80% of the home’s appraised value, offering potential savings over the loan’s duration.

• The minimum MI coverage for Home Possible AdvantageSM with LTV ratios between 95-97% is set at 18%, ensuring a level of protection for lenders while also considering the affordability for borrowers.

• Home Possible® mortgages require MI coverage of at least 18%, underscoring the program’s commitment to maintaining responsible lending practices.

Loan-to-Value (LTV) Ratios Overview:

• The maximum LTV ratio for a conforming fixed-rate Home Possible® mortgage is 97%, which allows for a minimal down payment and makes homeownership more accessible.

• For adjustable-rate mortgages (ARMs) and scenarios involving non-occupying borrowers or manufactured homes, the maximum LTV ratio is capped at 95%, balancing flexibility and financial prudence.

• With the inclusion of Affordable Seconds®, the total LTV (TLTV) ratio can reach 105% for all loan types, further enhancing the financing options available to borrowers.

Comparative LTV Ratios and MI Coverage:

• Fixed-Rate Mortgages:

• • Maximum LTV: 97%

• • Minimum LTV: 5%

• • MI Coverage: Minimum 18%

• Adjustable-Rate Mortgages (ARMs):

• • Maximum LTV: 95%

• • Minimum LTV: 5%

• • ARMs Not Allowed for Home Possible AdvantageSM: Ensuring stability in payment and interest rates for borrowers.

Credit fees for loans exceeding 80% LTV are also capped and maintained below standard fees, further aligning with the program’s goal of making homeownership affordable and accessible. This strategic structuring of MI and LTV ratios within the Freddie Mac Home Possible® program exemplifies its commitment to providing viable mortgage solutions for very low- to low-income borrowers, ensuring that the dream of homeownership is within reach for a broader spectrum of individuals.

Comparison with Other Mortgage Programs

When comparing the Freddie Mac Home Possible® mortgage program with other mortgage options, evaluating several key aspects is essential to understanding its unique position in the housing finance landscape. The following comparisons highlight differences in eligibility requirements, down payment needs, and other program-specific features:

• Freddie Mac Home Possible® vs. Fannie Mae HomeReady

• • Credit Score Requirements: HomeReady requires a minimum credit score of 620, whereas Home Possible® stipulates a 660 minimum or no credit score with a 5% down payment.

• • First-Time Homebuyer Status: HomeReady does not necessitate first-time homebuyer status, offering flexibility to a broader audience. Home Possible® also imposes no such condition, making it equally accommodating.

• Freddie Mac Home Possible® vs. Government-Insured Loans

• • FHA Loans: These loans are known for their 3.5% down payment requirement and lack of income limits, catering to homebuyers with fair credit. Unlike Home Possible® mortgages, FHA loans mandate mortgage insurance for the loan’s life, potentially increasing the long-term cost.

• • VA Loans: Exclusively for military personnel, veterans, and eligible surviving spouses, VA loans offer no minimum down payment and no income restrictions. Depending on the lender, credit score requirements may be as low as 620.

• • USDA Loans: USDA loans are aimed at buyers in rural areas, promote 0% down payments, and are backed by the U.S. Department of Agriculture, with specific income limits in place.

• Specialized Programs

• • HomeOne℠ Mortgage: Like Home Possible®, it requires a 3% down payment but is limited to first-time homebuyers. HomeOne℠ does not enforce income limits in low-income census tracts, contrasting with Home Possible’s income limits based on 80% of the AMI.

• • HeritageOne℠ Mortgage: Targets members of federally recognized Native American Tribes, offering conventional financing for various land ownership interests and homes in tribal areas.

• • Enhanced Relief Refinance® Mortgage: Provides refinancing options for borrowers with existing Freddie Mac mortgages who cannot avail of standard refinance offerings due to high LTV ratios.

• • HFA Advantage®: Exclusively for HFAs, this program aims to diversify product offerings and expand responsible homeownership.

• • Community Land Trust (CLT) Mortgages: Focuses on preserving affordable housing, promoting sustainable homeownership, and simplifying underwriting for lenders.

• • CHOICERenovation® and CHOICEHome® Mortgages: These programs cater to specific needs, with CHOICERenovation® supporting renovation financing and CHOICEHome® targeting manufactured homes meeting particular standards.

This comparative analysis underscores the Freddie Mac Home Possible® program’s unique position by offering low down payment requirements, flexible credit score criteria, and a broad eligibility spectrum. It is a competitive option among various mortgage programs with distinct advantages tailored to borrower needs.

FAQs

What distinguishes Freddie Mac’s Home Possible® from HomeOne programs?

The critical difference between the Freddie Mac Home Possible® and HomeOne programs is their income requirements. The HomeOne program does not impose any income limits, making it an attractive option for individuals who can only afford a 3% down payment but earn above the median income thresholds of similar programs like Fannie Mae’s HomeReady® or Freddie Mac’s Home Possible®.

What is the lowest credit score accepted for a Home Possible® loan?

The minimum credit score required for a Home Possible® loan is 660 for purchasing transactions and 680 for no cash-out refinancing options. It’s important to note that there are no income limits if the property is in an underserved area.

How do Home Possible® and Home Possible Advantage programs differ?

The Home Possible® and Home Possible Advantage programs cater primarily to condos and planned unit developments. However, Home Possible® is more flexible, accommodating 1-4 unit residences and, in some instances, specific manufactured homes. Conversely, Home Possible Advantage is more restrictive, only allowing 1-unit properties and excluding manufactured homes.

What sets HomeReady and Home Possible® loans apart?

The primary distinction between HomeReady and Home Possible® loans is their backing entities; Freddie Mac backs Home Possible®, while Fannie Mae backs HomeReady. Another significant difference is in their credit score requirements. Home Possible® loans require a minimum credit score of 660, whereas HomeReady loans have a lower threshold of 620.

Conclusion

Through this comprehensive exploration of the Freddie Mac Home Possible® mortgage program, we have unveiled the extensive opportunities it provides to very low-income borrowers aiming for homeownership. By highlighting its key features, benefits, and flexible financing options, including low down payment requirements and mortgage insurance benefits, the program stands out as an instrumental aide in making homeownership more attainable for many potential buyers. Its dedication to broadening access through eligibility criteria tailored to moderate-income families further underscores its pivotal role in democratizing the path to owning a home.

In navigating the complexities of the housing market, programs like Freddie Mac Home Possible® offer a beacon of hope, reinforcing the dream of homeownership as attainable and sustainable. With its comparative advantages over other mortgage options, illustrated through detailed comparisons, this program distinctly positions itself as an alternative and a preferred choice for many. Aspiring homeowners are encouraged to delve into this program, exploring its potential to dovetail with their homeownership goals and turn the key to unlocking the door to their future home with confidence and financial savvy.

Marimark Mortgage

Marimark Mortgage is based in Tampa, Florida, and proudly serves homebuyers and homeowners in all of Florida, Virginia, and Pennsylvania.

We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing, and help clients to lower their monthly mortgage payments.

To get started with a mortgage to buy your next home, please fill out our Quick Mortgage Application, or contact us direct.