If you have a low income but can afford a monthly mortgage payment and a minimal down payment upfront, Freddie Mac’s Home Possible may be a good option for you. The Home Possible program only requires a 3% down payment and has more flexible borrower requirements than other mortgage options.
Let’s go over what the Home Possible mortgage program is and how to qualify. We’ll cover some cost-saving options from Rocket Mortgage ® . Then, we’ll dive into the pros and cons of the Home Possible program and discuss some alternative loan options.
Freddie Mac’s Home Possible program allows first-time and repeat home buyers who have low to moderate incomes to qualify for a mortgage loan. The program offers several benefits to make homeownership more attainable.
Freddie Mac is a government-sponsored enterprise (GSE) under the Federal Housing Finance Agency (FHFA). Freddie Mac was established by Congress in 1970 and taken over by the FHFA in 2008 during the U.S. housing crisis. Today, Freddie Mac offers several loan programs – including Home Possible – that make housing more affordable for low- and moderate-income borrowers.
The Home Possible program was created in 2014. Some of the notable features of the Home Possible loan include a low down payment requirement and cancellable mortgage insurance, as well as less stringent credit score, debt-to-income ratio (DTI) and loan-to-value ratio (LTV) requirements compared to other loan types.
In order to take out a Home Possible mortgage, you’ll have to meet a few borrower qualifications. Here’s a list of eligibility requirements you’ll need to secure financing through Home Possible.
If all borrowers and co-borrowers are first-time home buyers, they will be required to take part in a home buyer education program. The National Industry Standards Committee sets guidelines for Homeownership Education and Counseling and borrowers can sign up locally for any homeownership education program that meets their requirements.
You can also browse your options online with programs like ReadyNest and CreditSmart ® .
Promoting affordable housing is a big part of Freddie Mac’s mission. That said, this product is targeted at helping a specific segment of the market who could use assistance in home affordability.
While this program is specifically funded by Freddie Mac, Fannie Mae’s HomeReady ® program is very similar in terms of both qualifications and who it targets. Your lender will be able to help you decide which option is right for you.
So, who should consider a Home Possible loan? Let’s go over the communities that the mortgage program may benefit the most.
In order to qualify for this particular loan option, the income of all borrowers used to qualify can’t be more than 80% of the area’s median income. This metric is designed to help those with low incomes who can afford their mortgage payments to qualify for home affordability based on a low down payment and, in many cases, more modest fees.
Although you don’t have to be a first-time home buyer to take advantage of the Home Possible program, it can certainly be a great option if you are one. Keep in mind that both Fannie Mae and Freddie Mac consider a first-time home buyer to be anyone who hasn’t owned a residential property in the 3 years prior to the new home purchase.
There are several advantages to a Home Possible mortgage program. Let’s walk through some common pros for home buyers.
The first major benefit of this loan option is that it only requires a 3% down payment. This is lower than the minimum 3.5% down payment required for FHA loans.
Rocket Mortgage has a couple of special offers available on Home Possible® loans. We understand that elevated rates and high home prices make today’s market challenging for many buyers, and we want to be your partner in this journey. You could save money to begin your loan term or via an upfront credit for your down payment or closing costs.
Welcome Home RateBreak is a 2-1 temporary buydown offer. 1 If you take advantage of this, for the first year of your term, your rate will be 2% lower than the permanent rate applicable over the course of your loan term. In the second year, your rate is 1% lower than the permanent rate before your note rate applies in the third year.
Year
Effective Rate
Payment
Annual Savings
Alternatively, you can opt for a loan level price adjustment (LLPA) credit of 1% of the loan amount up to $3,500. If the loan is below $200,000, the credit will be $2,000. If you make 50% or less of the area median income where you're looking to buy, you can receive a $2,500 grant. These can be used for down payment and closing costs.
Your LTV compares how much you owe on your loan to the value of your house and expresses this as a percentage. In most cases, you’re required to have an LTV somewhere between 80% – 95% depending on the type of mortgage you’re getting.
With Home Possible, you may be able to finance up to 105% of your home’s total value through the Affordable Seconds ® secondary financing program. Affordable Seconds is a second mortgage that can be used to fund your down payment and closing costs. Check with your lender to determine whether this could be an option for you.
Keep in mind that Rocket Mortgage ® doesn’t offer purchase loans with second mortgages.
In addition to using a second mortgage to fund a down payment, you can also receive your down payment from gift funds (including from family members). For a one-unit primary residence, your entire down payment may come from a gift. According to Freddie Mac, you can also fund a down payment through grants, sweat equity, proceeds from an unsecured mortgage loan and Employee Assisted Housing (EAH).
Additional down payment assistance programs may also be available to you. Be sure to look around and explore all your options.
Manual underwriting means someone goes through and evaluates your income and credit history along with the amount of assets you have and the suitability of the property. This is different from automated underwriting, which involves computerized decision-making based on your loan application. Sometimes additional requirements, such as specific FICO ® Scores, may apply. For some borrowers, the manual underwriting process may be helpful.
Rocket Mortgage doesn’t offer manual underwriting for Home Possible loans at this time.
All major mortgage investors like Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA) have specific fees that are charged based on the loan amounts and different risk factors.
With Home Possible, the lowest median FICO® Score to qualify is 620. However, if your median credit score is 680 or better, there are no additional pricing adjustments on the loan. If your score is below 680, there’s a maximum price adjustment of 1.5% of the loan amount.
There are some disadvantages to the Home Possible program. Let’s quickly run through what you need to know.
Although many mortgage lenders offer Freddie Mac’s Home Possible loan, including Rocket Mortgage, this isn’t universal. You may have to shop around to find lenders that can extend a Home Possible mortgage.
Because of the income limits and other requirements associated with the Home Possible loan, the potential pool of borrowers is smaller than the general housing market. Some lenders may choose not to offer this program because it’s not as prominent as other mortgage options.
The Home Possible program is only available for primary residences. Primary residences are homes you occupy for the majority of the year. The loan program isn’t available for vacation homes or investment properties. The good news is that you can purchase up to four units, so you have the option to live in one unit and rent out the others.
Home Possible and HomeReady are two types of government-sponsored mortgage programs. However, there are also other options from the FHA, USDA (United States Department of Agriculture) and VA. Let’s go over each of these alternative loan options.
FHA loans are insured by the Federal Housing Administration (FHA) and have more lenient borrower requirements compared to other mortgage options. Borrowers with a credit score of 580 or higher can secure an FHA loan with a minimum 3.5% down payment. If your score lies between 500 – 579, you’ll be required to make a down payment that’s 10% of the home’s purchase price.
USDA loans are backed by the U.S. Department of Agriculture and are designed to help low-income borrowers in rural areas achieve homeownership. USDA loans don’t require a down payment if you live in a rural area with a household income that’s under 115% of the area’s median income. Most lenders require a credit score of 640 or higher and a minimum DTI of 43% to qualify for a USDA loan.
Rocket Mortgage doesn’t offer USDA loans at this time.
VA loans are available for eligible veterans, reservists, members of the National Guard, active-duty personnel and qualified surviving spouses. A major benefit of VA loans is that there isn’t a down payment requirement. Eligible borrowers also don’t have to pay private mortgage insurance (PMI) on VA loans.
To qualify, you’ll have to show proof of your service by acquiring a Certificate of Eligibility (COE). You’ll also need a minimum credit score of 580 to qualify for a VA loan with Rocket Mortgage.
Freddie Mac and Fannie Mae have new refinance programs to help low-income borrowers with higher DTIs to refinance and take advantage of lower rates and the opportunity to lower their payment. They’re called Refi Possible℠ and RefiNow™, respectively.
There are several requirements for these programs, including the following:
Freddie Mac’s Home Possible program helps low-income borrowers secure a mortgage and become a homeowner – all at a lower cost. Fannie Mae’s HomeReady program is nearly identical. To qualify, you’ll need to make no more than 80% of the area’s median income. There are also similar programs available if you’re looking to refinance with a lower income and higher DTI ratio.
Home Possible® and HomeReady® borrowers also qualify to save money during the first couple of years of the loan term with a temporary buy down from Rocket Mortgage. The other option is an upfront grant toward down payment and/or closing costs. If you’re ready to look into your loan options, you can apply online today.
1 The 2-1 temporary buydown offer is funded by Rocket Mortgage. Clients will receive an effective rate reduction of 2% below the note rate in the first year and 1% below the note rate in the second year. Offer only valid on HomeReady® or Home Possible® loans. Maximum loan amount of $350,000. Buydown funds may not be redeemed for cash or credit and are nontransferable. This offer cannot be retroactively applied to any loans in process or closed loans. Offer is subject to changes or cancellation at any time at the sole discretion of Rocket Mortgage. Additional restrictions/conditions may apply. This is not a commitment to lend.