What is a Home Possible Loan?

Are you dreaming of owning your home but struggling to secure a mortgage? Enter the Home Possible Loan - a lesser-known but compelling financing option that could unlock the door to homeownership.

With its flexible requirements and attractive terms, this program is making waves in the real estate world, offering hope to those who might have previously felt shut out of the housing market. But what exactly is a Home Possible Loan, and how does it differ from traditional mortgages? Let's dive in and explore this innovative solution that's changing the game for potential homebuyers.

Introduction to the Home Possible Program

The Home Possible program is a conventional mortgage program offered by Freddie Mac, a government-sponsored enterprise that buys and sells mortgages in the secondary market. The program was launched in 2014 to help more borrowers achieve their dream of owning a home. The program offers flexible underwriting guidelines, low down payment requirements, reduced mortgage insurance costs, and competitive interest rates.

Requirements for Down Payment for a Possible Home Mortgage

One of the main advantages of the Home Possible program is that it allows borrowers to make a down payment as low as 3% of the purchase price. This means you can buy a home with less money upfront and save on closing costs. The down payment can come from various sources, such as savings, gifts from relatives or friends, grants from nonprofit organizations or government agencies, employer assistance programs, or secondary financing. You can also use sweat equity, which is the value of your labor or materials that you contribute to the construction or renovation of the Home.

Eligibility for Home Possible Loans

The Home Possible program is designed for borrowers with low to moderate income, limited cash for a down payment, or credit challenges. The program is especially beneficial for first-time homebuyers who may not have a long credit history or a large savings account. The program is also ideal for borrowers who want to buy a home in an area that is underserved by conventional lenders or has high housing costs. The program can purchase a single-family home, a condominium, a cooperative unit, a manufactured home, or a two- to four-unit property.

Specific Eligibility Criteria for Home Possible

To qualify for a Home Possible loan, you must meet specific eligibility criteria Freddie Mac sets. These include:

Income limits:

Your income cannot exceed 80% of the area median income (AMI) in the ZIP code where you want to buy a home. You can use the Home Possible Income & Property Eligibility Tool to check the income limits for specific properties. However, there are some exceptions to this rule. There are no income limits if you buy a home in a designated high-cost, disaster area or an area of persistent poverty. If you believe a home in an area where at least 50% of the residents have incomes below the AMI, there are also no income limits.

Credit score:

A minimum credit score of 620 would be best to qualify for a Home Possible loan. However, if you have a higher credit score, you may get better interest rates and lower mortgage insurance costs.

Occupancy:

You must occupy the property as your primary residence within 60 days of closing. You cannot use the Home Possible program to buy an investment property or a second home.

Education:

If you are a first-time homebuyer, you must complete a homeownership education course before closing. The course can be online or in-person and must be approved by Freddie Mac. The course will teach you about home-buying, budgeting, credit management, and homeownership responsibilities.

Income Limits for Home Possible Loans

As mentioned above, your income cannot exceed 80% of the AMI in the ZIP code where you want to buy a home. The AMI is the average income of all households in a given area and is determined by the U.S. Department of Housing and Urban Development (HUD). The AMI varies by location and changes yearly based on economic conditions and population changes.

You can use the Home Possible Income & Property Eligibility Tool on Freddie Mac's website to determine your area's AMI and income limits. You must enter the address or ZIP code of the property you want to buy and click "Search." The tool will show you the AMI and income limits for that area.

For example, if you want to buy a home in Pittsburgh, Pennsylvania (ZIP code 15213), the tool will show you that the AMI for that area is $71,100 and the income limit for a Home Possible loan is $56,880 (80% of AMI). This means that your annual income cannot exceed $56,880 if you want to qualify for a Home Possible loan in that area.

However, if you want to buy a home in San Francisco, California (ZIP code 94102), the tool will show you that the AMI for that area is $136,800 and the income limit for a Home Possible loan is $109,440 (80% of AMI). This means that your annual income cannot exceed $109,440 if you want to qualify for a Home Possible loan in that area.

Loan Limits for Home Possible Loans

Another factor that affects your eligibility for a Home Possible loan is the loan limit. The loan limit is the maximum amount of money that Freddie Mac will lend you to buy a home. The loan limit varies by location and property type and changes yearly based on housing market conditions.

You can use the Loan Limit Look-Up Tool on Freddie Mac's website to determine the loan limit for your area and property type. You need to enter the state and county where you want to buy a home and click "Find."The tool will show you the loan limit for different property types, such as single-family, two-family, three-family, and four-family.

For example, if you want to buy a single-family home in Allegheny County, Pennsylvania, the tool will show you that the loan limit for a Home Possible loan is $548,250. This means you cannot borrow more than $548,250 from Freddie Mac to buy a single-family home in that county.

However, if you want to buy a single-family home in San Francisco County, California, the tool will show you that the loan limit for a Home Possible loan is $822,375. You can borrow up to $822,375 from Freddie Mac to buy a single-family home in that county.

Homeownership Education Requirements

As mentioned above, if you are a first-time homebuyer, you must complete a homeownership education course before closing. The course can be online or in-person and must be approved by Freddie Mac. The course will teach you about home-buying, budgeting, credit management, and homeownership responsibilities.

You can find a list of approved homeownership education providers on Freddie Mac's website. Some of the providers are:

Framework
eHome America
Clearpoint
Money Management International
NeighborWorks America
The cost and duration of the course may vary depending on the provider and format. Some providers may offer the course for free or at a reduced fee for low-income borrowers. You may also be eligible for a reimbursement of up to $50 from Freddie Mac if you complete the course through Framework or eHome America.

You need to provide a certificate of completion to your lender before closing. The certificate must show your name, the provider's name, the date of completion, and the name of the course.

Benefits of the Home Possible Program

The Home Possible program offers several benefits for borrowers who want to buy a home with limited income and resources. Some of the pros of the program are:

Low down payment: You can buy a home with as little as 3% down, which can help you save on closing costs and start building equity sooner.

Flexible sources of funds: You can use various sources for your down payment and closing costs, such as gifts, grants, secondary financing, or sweat equity. You don't need to have your savings or assets to qualify.

Reduced mortgage insurance: You can pay less for mortgage insurance than with other conventional loans or FHA loans. You can also cancel mortgage insurance once your loan balance drops below 80% of your Home's value, lowering your monthly mortgage payment and saving you money.

Competitive interest rates: You can get lower interest rates than with other conventional loans or FHA loans. This can reduce your monthly mortgage payment and save you money over time.

Flexible underwriting: You can qualify for a Home Possible loan even with low income, low credit score, high debt-to-income ratio, or non-traditional credit history. Freddie Mac uses automated underwriting systems that evaluate your financial situation and loan repayment ability.

No geographic restrictions: You can buy a home in any area in the U.S., whether urban or rural, high-cost or low-cost. You can also buy any property that meets Freddie Mac's standards, such as single-family homes, condos, co-ops, manufactured homes, or multi-unit properties.

Drawbacks of the Home Possible Program

The Home Possible program also has some drawbacks you should know before applying. Some of the cons of the program are:

Income limits: Your income cannot exceed 80% of the AMI in the ZIP code where you want to buy a home. This may limit your options if you buy a home in an area with high incomes or high housing costs.
Loan limits: Your loan amount cannot exceed the limit set by Freddie Mac for your area and property

Summary and Conclusion

In conclusion, the Home Possible Loan is a valuable option for potential homebuyers, particularly those with lower incomes or limited down payment savings. Its flexible eligibility requirements and low down payment options provide an accessible path to homeownership for many individuals and families.

This loan program incentivizes lenders to extend credit to borrowers who may have previously struggled to qualify for conventional loans by offering competitive interest rates and reduced mortgage insurance costs. As the demand for affordable housing options continues to rise, the Home Possible Loan is essential in expanding access to homeownership.

For those considering purchasing a home but facing financial constraints, exploring the details of the Home Possible Loan could be a crucial step towards achieving their homeownership goals.

SOURCE:
Home Possible Mortgage
Home Possible Mortgage Underwriting Methods and Requirements
Origination and Underwriting Requirements