Saving for a down payment while having a lower income are two of the most significant barriers to buying a home. However, Freddie Mac’s Home Possible Mortgage offers an excellent solution for low- to middle-income homebuyers by offering loans with down payments of just 3%.
Here is an overview of the Home Possible loans as well as a highlight of guidelines and requirements.
What Is A Home Possible Mortgage?
A Freddie Mac Home Possible mortgage is a loan mainly for first-time homebuyers and low- to moderate-income borrowers.
Some of the main features of the Home Possible mortgage are:
- Low down payments.
- Reduced mortgage insurance coverage.
- Fixed-rate mortgages.
- Flexible options for funding closing costs.
- No cash-out refinancing.
What are the Borrower Criteria for a Home Possible Mortgage?
Home Possible loans aim to assist lower-income borrowers with solid credit scores to overcome the challenges they face when buying a home. As a result, there are several criteria that homebuyers should consider when applying for this mortgage program.
Because these programs aim to help lower-income buyers, the borrower’s annual income must not exceed 100% of the area median income (AMI). However, there are some exceptions. For example, in high-cost areas, a higher percentage of AMI may be acceptable. Additionally, in areas that mortgage lenders currently underserve, no income limits are applied.
The Home Possible loan will consider credit scores of ≥ 660 for purchase transactions and as low as 680 for no cash-out refinances. Additionally, loans where none of the borrowers has usable credit may also be considered.
Within the requirements of this program, a borrower who has had no ownership interest in a residential property within the last three years is considered a first-time homebuyer. Furthermore, displaced homemakers and single parents who joint-owned a home in the previous three years will be considered as first-time buyers, providing these were their only ownership interests during that time frame.
Occupancy & Ownership of Other Properties
Another plus with the Home Possible mortgage is that ownership of another property is allowed without restriction. Additionally, non-occupant borrowers with mortgages that are secured by one-unit properties will be permitted when:
- The LTV ratio is equal to or less than 95% for underwritten loans through the Loan Product Advisor.
- The LTV ratio is equal to or less than 90% for mortgages that are manually underwritten.
- The debt-to-income ratio, or DTI, is equal to or less than 43%. This criterion is based on a manually underwritten mortgage and the occupying borrower’s income.
For the Home Possible Mortgage, the eligible properties are:
- One- to four-unit properties.
- Fee simple homes.
- Planned unit developments.
- Manufactured housing (with certain restrictions).
Finally, homes purchased under these programs must be the borrower’s primary residence. Therefore, investment properties and vacation homes are ineligible through these loans.
There are several loan criteria prospective homebuyers need to consider to qualify for a Home Possible loan.
Conforming and super-conforming mortgage loans are both eligible under this program. These limits depend on the area and are published annually by Freddie Mac.
The maximum LTV on a Home Possible loan is 97%. For secondary financing and home equity lines of credit (HELOCs), limits are a CLTV ratio equal to or less than 97%.
Down Payment Sources
For one-unit properties, there is no minimum contribution from personal funds required. However, a 3% down payment is required for two- to four-unit properties, while 5% is required for manufactured homes.
If all borrowers are first-time buyers, homeownership education is mandatory. This counseling is provided online at no extra cost.
Mortgage insurance is required, with a minimum of:
- 16% coverage for 90-95% LTV.
- 12% coverage for 85-90% LTV.
- 6% coverage for 80-85% LTV.
- 0% coverage for below 80% LTV.
Freddie Mac’s automated underwriting tool, Loan Product Advisor, is used to determine if borrowers’ debt-to-income ratios are deemed acceptable. Acceptable ratios can be as much as 45%.
Temporary Interest Rate Buy Downs
There are some scenarios where temporary interest rate buy downs are available with these loans. For example, they are not available for manufactured homes but are for one- to two-unit homes.
Freddie Mac’s Home Possible loan is an excellent option for low- to middle-income buyers and first-time buyers. It can also be a good option for newlyweds using wedding gifts as a down payment and seniors looking to downsize. Additionally, these programs can benefit anyone who wants to get a mortgage but rent out the second unit.
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
We specialize in mortgages for first-time homebuyers, conventional home mortgages, refinance loans, reverse mortgages, and FHA, VA, and USDA mortgage options. 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.