Freddie Mac's Low-Income Homeownership Program

Buy a home with only 3%. Learn how.

What is a Home Possible Mortgage?

A picture of a 2-story house with the words 3% down payment The Federal Home Loan Mortgage Corporation (Freddie Mac) provides the Home Possible program to help borrowers with low and moderate incomes buy homes. These mortgages often have less stringent underwriting standards and more minor down payment requirements than regular mortgages. They may be utilized for single-family houses, condominiums, and planned unit projects and are also accessible for buying and refinancing transactions.

First-Time Home Buyer Requirements for a Home Possible Loan

The borrower does not have to be a first time home buyer for the Home Possible loan

Down Payment Requirements for a Home Possible Loan

1-Unit 3% down payment
2-Unit 5% down payment
3-4 Units 5% down payment

The down payment requirement for 2 to 4 unit properties is less than the Fannie Mae Home Ready 3% loan.

Home Possible Interest Rates: Competitive Rates for Low- to Moderate-Income Borrowers

Those borrowers who qualify for a Possible Home loan may get a lower interest rate. Home Possible loan interest rates are often less expensive than traditional loans. You may reduce your monthly mortgage payment and the overall amount of interest you pay.
See today's interest rates

Eligible Property Types for Home Possible Loans

The Home Possible loan permits the following property types:

1 to 4 unit owner occupied properties,
condo (Freddie Mac approved),
PUD (planned unit development), or
one unit manufactured homes (A down payment of at least 5% is required)
investment properties not allowed

Occupancy Requirements for Home Possible Loans: What You Need to Know Before Applying

The borrower must occupy the mortgaged property as a primary residence. Non-occupant co-borrowers are allowed on mortgages for 1-unit properties with a 5% down payment.

Loan Limits for a Home Possible Loan

The Possible Home program provides loans to borrowers up to the conforming loan limits for single-unit properties in the contiguous United States, ranging from $726,200 to $1,089,300.
See Conforming loan limits

Understanding PMI for Home Possible Loans

Obtaining a Home Possible loan requires you to pay for private mortgage insurance (PMI) until you've built up 78% equity in your property. This insurance is included in your monthly mortgage payment and is calculated as a percentage of the total loan amount. Once you reach 22% equity, the mortgage insurance will automatically cancel. Borrowers pay a reduced cost for the mortgage insurance.
Read more about private mortgage insurance

Credit Score Requirements for Home Possible Loans

For a Home Possible loan that requires a down payment of only 3% of the total loan amount, Freddie Mac advises applicants to have credit scores of at least 620.

Income Limits for Home Possible Loans

Couple looking at their new home The Home Possible Program limits the borrower's income, so if you make above a certain amount, you are not eligible for the program. Your annual gross income cannot exceed 80% of the area median income (AMI) for the census tract where the property is located. For example, if the AMI for a neighborhood is $100,000, you cannot earn more than $80,000 per year in gross income ($100,000 * 80% = $80,000 applicant income limit). It is advisable to check with a lender before applying for a Home Possible mortgage to ensure that you meet this guideline.

Using Gift Funds for a Down Payment on Home Possible Loans

Eligible sources of funds for the down payment and closing costs include gifts, grants, and cash on hand.

Check with the lender you're working with to learn the specific guidelines on gift funds,
Read more about gift funds for down payment and closing costs

Home Possible Loan Guidelines for Seller Concessions

The Home Possible loan program allows sellers to offer concessions to buyers based on the down payment amount. If the buyer puts down less than 10% on the property, the seller can offer up to 3% of the sales price as a concession towards the buyer's down payment. If the buyer puts down 10% or more, the seller can offer up to 6% of the sales price as a concession. It is essential to check with the lender you're working with to know their specific guidelines for seller concessions for Home Possible loans.

Sales concessions from the seller must be included in the sales agreement.
Read more about seller concessions

Requirements for Homebuyer Education for Home Possible Loans

Only when all borrowers are first-time homebuyers or when all borrowers' credit histories are established using only noncredit payment references are homeownership education requirements for purchase mortgages necessary. For a purchase mortgage, before the mortgage's note date, at least one borrower must finish a homeownership education course in both situations.

Guidelines for Debt-to-Income Ratio for Home Possible Loans

Consider the debt-to-income (DTI) ratio guidelines when applying for a Home Possible loan. The DTI ratio compares a borrower's monthly obligations to their gross income. The Possible Home program, offered by Freddie Mac, has a maximum DTI ratio of 45%. This means your monthly obligation payments, including your proposed mortgage, cannot exceed 45% of your gross monthly income.

Remember that lenders may have specific DTI guidelines in addition to those set by the Possible Home program. Always check with your lender to ensure you meet their requirements. Additionally, having a lower DTI ratio can improve your chances of loan approval and help you get a better loan rate.
Read more about debt to income ratios

Qualifying for a Home Possible Loan with a Cosigner

Improve your chances of being accepted for a Home Possible loan by securing it with a co-signer, particularly if you have a lower credit score or earnings. A co-signer is an individual who agrees to take on the financial obligation of the loan with you and must sign all loan documents.

A co-signer must meet the same income and credit requirements as the primary borrower, but their income can be used to secure the loan. With a co-signer, the lender will consider both the borrower's and co-signer's income and credit score, increasing the chances of loan approval.

Remember that the co-signer will be equally responsible for the loan, so choose someone reliable and willing to take on this responsibility. Additionally, having a co-signer can help you get a better loan rate.

FAQs About the Home Possible Loan

Q. What is a Home Possible loan?
A. A Home Possible loan is a type of mortgage offered by Freddie Mac that is designed to make homeownership more affordable for low- and moderate-income borrowers.

Q. What are the income requirements for a Home Possible loan?
A. Income requirements vary depending on the location of the property and the number of borrowers on the loan. In general, borrowers must have a debt-to-income ratio (DTI) that is less than 45%.

Q. Who is eligible for a Home Possible loan?
A. Home Possible loans are available to borrowers who meet certain income and credit requirements. Borrowers must also occupy the property as their primary residence.

Q. What are the credit requirements for a Home Possible loan?
A. Borrowers must have a minimum credit score of 620, but some lenders may have higher requirements.

Q. What is the interest rate for a Home Possible loan?
A. Interest rates for Home Possible loans are similar to those for conventional loans and may vary depending on the lender and the borrower's credit score.

Q. How long is the loan term for a Home Possible loan?
A. The loan term for a Home Possible loan is typically 30 years.

Q. What are the closing costs for a Home Possible loan?
A. Closing costs for a Home Possible loan are similar to those for a conventional loan and may vary depending on the lender.

Q. Can I get a Home Possible loan with a co-signer?
A. Yes, borrowers can get a Home Possible loan with a co-signer, which can help improve the chances of loan approval and may help get a better loan rate.

Q. How do I apply for a Home Possible loan?
A. To apply for a Home Possible loan, borrowers should contact a lender that offers the program and provide the necessary documentation, including income and credit information.

Summary

The Federal Home Loan Mortgage Corporation (Freddie Mac) provides the Home Possible program to help borrowers with low and moderate incomes buy homes. These mortgages often have less stringent underwriting standards and more minor down payment requirements than regular mortgages.

They may be used for single-family houses, condominiums, and planned unit projects and are also accessible for buying and refinancing transactions. The borrower does not have to be a first-time home buyer for the Home Possible loan.
Down payment requirements for a Home Possible Loan:
1-Unit 3% down payment,
2-Unit 5% down payment,
3-4 Units 5% down payment.

Home Possible interest rates are usually less than the standard conventional loan. The Home Possible loan permits the following property types: 1 to 4-unit owner-occupied properties, condo (Freddie Mac approved), PUD (planned unit development), or one-unit manufactured homes (A down payment of at least 5% is required) investment properties not allowed.

The borrower must occupy the mortgaged property as a primary residence. Non-occupant co-borrowers are allowed on mortgages for 1-unit properties with a 5% down payment. The Possible Home program provides loans to borrowers up to the conforming loan limits for single-unit properties in the contiguous United States, ranging from $726,200 to $1,089,300.

Obtaining a Home Possible loan requires you to pay for private mortgage insurance (PMI) until you've built up 78% equity in your property. This insurance is included in your monthly mortgage payment and is calculated as a percentage of the total loan amount. Once you reach 22% equity, the mortgage insurance will automatically cancel. For a Home Possible loan that requires a down payment of only 3% of the total loan amount, Freddie Mac advises applicants to have credit scores of at least 620.

The Home Possible Program limits the borrower's income, so if you make above a certain amount, you are not eligible for the program. Suitable sources of funds for the down payment and closing costs include gifts, grants, and cash on hand.

SOURCE:
Home Possible Mortgage
Home Possible Mortgage Underwriting Methods and Requirements
Frequently Asked Questions