Freddie Macs mortgage down to 3%
Home buyers today face many obstacles. You might be concerned about buying a low income home or saving for a down payment. Maybe your credit rating is not perfect.
If you are faced with any of these obstacles, a Freddie Mac Home Possible loan could be the perfect solution.
The Home Possible mortgage program requires only 3% less and has looser loan requirements than some other loan types. So it can be ideal for many first-time buyers who need an extra boost.
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What is the Home Possible Loan Program?
Some mortgage loan programs require you to pay 10 to 20% on a home, have preferred creditworthiness, and meet strict income requirements.
These are one of the reasons many first-time home buyers – and even homeowners seeking refinancing – believe they may not qualify for mortgage financing.
Fortunately, there are a few different programs that are designed to help these borrowers. Whether you need a small down payment, looser credit requirements, or income flexibility, there are options to help you.
One such program is called Home Possible and is supported by the state-sponsored Freddie Mac.
About the Freddie Mac Home Possible Mortgage
The Home Possible Mortgage is aimed at lower income borrowers who may otherwise not be eligible for mortgage financing.
This program makes home ownership more accessible by lowering the barriers to entry: all you need is a 3% down payment and a credit score of 660 on a Home Possible loan.
"Freddie Mac Home Possible offers more options for a wide variety of borrower situations," said Jared Maxwell, vice president of consumer-direct lending at Embrace Home Loans.
"This program is designed to help people whose incomes are 80% or less of the median income in the region by offering low down payment options and flexible sources of down payment," says Maxwell.
With Home Possible you don't have to pay the 3% deposit out of pocket.
Funds can come from a down payment support program or even from a gift from a family member.
Note that while Freddie Mac supports this loan program, Freddie is not a lender.
Home Ownership Potential loans are provided by private lenders, giving borrowers an opportunity to shop around for their mortgage lender and compare interest rates.
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Who Is Eligible for a Home Possible Loan?
To qualify for a Home Possible mortgage loan, you must meet the eligibility requirements set out by Freddie Mac and your lender. In short, you will need:
A 660 or higher creditworthiness A 3% down payment A DTI below 43% Stable income and permanent employment Household income not higher than 80% of the median in your region You live in the apartment as your main residence
"Home Possible is available to anyone who earns less than 80% of the average monthly income for the zip code they buy," said Ralph DiBugnara, founder of Home Qualified.
“In addition, the property must be owned by at least one of the loan applicants, and a FICO credit score of at least 660 is required for all loan applicants. In addition, the program is only available for single-family homes, ”explains DiBugnara.
Other requirements for Home Possible Loans are:
A debt-to-income ratio (DTI) of 43% or less when the loan is approved through Freddie Mac's automated Uderwriting system. Or a DTI of 45% or less if the loan is drawn manually. If you have multiple home loans or a second mortgage that may be used to cover the down payment, the LTV is max 105%
“While first-time home buyers have access to this program, people who have previously owned a home or have an interest in financed residential property can qualify as long as their income is 80% of the region's median income and at least one borrower lives as a Primary residence in the apartment, ”notes Maxwell.
He explains, "The loan officer will apply through Freddie Mac's automated underwriting system to confirm that the loan meets the qualification requirements, or submit the application as a manual underwriter if the lender allows it."
Another advantage? You can also qualify for the loan with a co-signer.
"Non-resident co-clients are allowed in this program, which means you can qualify with the income of a parent or other person who agrees to co-sign the loan with you," said Imani Francies, mortgage expert at Loans.org .
Note that if all of the occupying borrowers are first-time buyers or if all borrowers' credit history is based on non-traditional payment records, at least one borrower must be enrolled in a home ownership training program.
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Home Possible income limits
Since mid-2019, Freddie Mac has required that the annualized qualifying income of a borrower must not exceed 80% of the Area Median Income (AMI) for the location of the home loaned.
“Despite the program's minimal down payment requirements, Home Possible mortgages incorporate risk control measures that encourage prudent funding. Therefore, your annual income cannot exceed this limit, ”notes Francies.
To better determine if you qualify, use the Home Possible Eligibility Tool.
Home Possible Interest Rates and Mortgage Insurance
The possible mortgage rates are competitive with other conventional low down payment loans. That means borrowers can access today's low mortgage rates through the Home Possible program.
Of course, the interest rate you qualify for depends on many factors, including your lender, repayment term, and creditworthiness.
Note that for a Home Possible loan, you must also get private mortgage insurance (PMI). This increases your monthly mortgage payments.
The good news is that 1 unit property mortgage insurance can be canceled if your loan balance falls below 80% of the appraised value of the home and the cancellation criteria are met. It also cuts mortgage insurance protection requirements for LTV rates above 90% (which means you will lose 10% or more).
Alternatives to Freddie Mac's home loan possible
Of course, the Home Possible loan isn't your only low down payment option. You can also qualify for other home loan programs, including:
FHA loans – Requirements: 3.5% less, at least 580 FICO credit points, maximum 43% DTI rateConventional loan 97 – (offered by Fannie Mae / Freddie Mac). Requirements: 3% less, 620-660 FICO credit score minimum, 50% DTI maximum, 97% LTV ratio maximumFannie Mae Home Ready Loan – Requirements: 3% less, 620-680 FICO credit score, 50% DTI maximum, 97% LTV maximum, annual income must not exceed 100% of the median income for this areaVA home loan – Requirements: 0% less, minimum 580-660 FICO credits, maximum 41% DTI, must be a veteran, active duty member, or veteran's spouseUSDA loan – Requirements: A minimum of 640 FICO credit points, a maximum of 41% DTI, annual income must not exceed 115% of the median income of the region, must be purchased in eligible rural areas.
“An FHA loan would probably be the next best option if you don't qualify for or don't want to get a Home Possible loan,” says Francies.
“The former is guaranteed by the (Federal Housing Administration) and is available to low- to middle-income borrowers.
The HomeReady loan is another great option endorsed by Fannie Mae.
In many ways, HomeReady is similar to Home Possible. However, as an added bonus, you can use the income of household members who are not borrowers to qualify. For example, if you have a parent or roommate who lives with you but does not apply for the mortgage, their income can still help you qualify for the loan.
Freddie Mac Home Possible FAQ
What is possible at home?
Home Possible is a loan program offered by Freddie Mac designed to help lower-income borrowers buy a home or get refinance. With a home loan, you only need 3 percent less, although your income cannot exceed 80 percent of the median income of the area in the zip code where you want to buy a house.
What is the Minimum Credit Score for Home Possible?
As per Freddie Mac's requirements, you must have a FICO score of 660 or higher to qualify for a Home Possible loan.
What is the maximum possible DTI for home?
Qualifying debt-to-income ratios are typically determined by Freddie Mac's automated underwriting tool. However, for manually drawn mortgages, this rate can be up to 45 percent.
What is the Maximum LTV for Home Possible?
The maximum loan-to-value ratio (LTV) for a Home Possible loan is 97 percent. Or with Freddie Mac's Affordable Seconds – a second mortgage that can help cover your down payment and closing costs – a combined LTV of 105 percent is allowed.
Do I have to be a first-time home buyer for Home Possible?
No, you don't have to be a first-time buyer to qualify for a Home Possible loan. Repeaters and homeowners looking to refinance can also be considered.
Can You Refinance Yourself With a Home Possible Loan?
A Home Possible loan allows you to refinance on time and with interest rates without making a payout. This can be an option when you have very little equity in the house. You can also refinance from a Home Possible loan to another loan program if you qualify for it.
Does Home Possible allow cash-out refinancing?
No, you cannot withdraw cash with a Home Possible refinance loan. Only refinancing in good time and in line with interest rates is permitted.
What is the difference between HomeOne and Home Possible?
Freddie Mac also offers another loan program called HomeOne. Like Home Possible, it offers loans for as little as 3 percent. However, unlike Home Possible, if the HomeOne mortgage is a purchase loan, at least one borrower must be a first-time buyer.
What is the difference between HomeReady and Home Possible?
Fannie Mae offers a loan program called HomeReady that is similar to Home Possible. With both, you can borrow up to 97 percent of the property's value with a first mortgage. But every loan comes with different rules and benefits. For example, according to Jared Maxwell of Embrace Home Loan, HomeReady has a minimum credit score requirement of 620 versus Home Possible's minimum credit score requirement of 660.
How do I qualify for a 3 percent down mortgage?
There are a variety of mortgage programs available through Fannie Mae and Freddie Mac with a 3 percent reduction. Requirements vary, but expect a minimum credit score of 620-660 and a debt to income ratio of less than 45 percent. Usually you have to live in the house as your main residence. And you may need to be within the local income limits as well.
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