Freddie Mac's Low-Income Homeownership Program
Buy a home with only 3%. Learn how.
What is a Home Possible Mortgage?
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
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.
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.
SOURCE:
Home Possible Mortgage
Home Possible Mortgage Underwriting Methods and Requirements
Frequently Asked Questions
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