How To Get A Freddie Mac Home Possible Loan
If your income is low but you can still afford a small down payment and a monthly mortgage payment, a Home Possible loan, guaranteed by Freddie Mac, may be a solution for you.
What Is A Freddie Mac Home Possible Loan?
Home Possible is a program designed to help people with low incomes be able to qualify for a mortgage that they otherwise might not be able to receive.
Freddie Mac’s Home Possible loan is part of their mission to create home affordability, specifically designed to allow first-time home buyers and repeat home buyers to be able to qualify for mortgages by removing some of the obstacles that prevent people with low incomes from being able to get a mortgage.
What Is Freddie Mac?
Freddie Mac and Fannie Mae are government-sponsored agencies, chartered by congress for the purpose of making homeownership possible for the general public.
Freddie Mac and Fannie Mae have many different functions, most importantly buying loans from banks, enabling banks and other lenders to give mortgages to many more people than they would be able to otherwise.
Another mission of Freddie Mac is to make mortgages more affordable. One of the ways they do this is through the Home Possible Loan.
It’s important to note that Freddie Mac doesn’t actually give you a loan, that’s the job of a mortgage lender. Under the Home Possible program, Freddie Mac guarantees they will purchase that loan from the lender, provided it meets their criteria.
The Advantages Of A Home Possible Loan
Home Possible loans are great for those who qualify because they have a lower down payment requirement, have lower fees, and more flexibile technical requirements to get a loan. (I’ll go into detail on these in just a moment.)
Who Can Qualify For A Home Possible Mortgage?
Not everyone can qualify for a Home Possible mortgage. Home Possible loans are only available when all of the clients on the loan have income that is less than 80% of the median income in their area.
You can find out if your income can qualify for a Home Possible mortgage loan by asking your lender (we’d be happy to help CTA.)
Or your can input the address of the house you intend to purchase here to see the median income requirements in that area.
Then after waiting a minute or two (be patient…) the income limit for that area will appear on the map:
Why You Should Consider A Freddie Mac Home Possible Loan
The Freddie Mac Home Possible loan program has several advantages over other conventional loans, including:
Lower Down Payment Requirements
The biggest advantage of the Home Possible loan is that it only requires a down payment of 3%, significantly lower than many conventional loans, and it’s even lower than FHA’s minimum down payment of 3.5%.
You May Not Actually Have To Make A Downpayment
Standard loans have a requirement that the amount you borrow can’t be more than 80-95% of the value of your house. With a Home Possible Loan, the amount of your loan can be as high as 105% of the house’s value.
I know that sounds technical, but here’s what it means for you:
It’s possible to get a second mortgage on your house to pay for your down payment. This is done through a program called Affordable Seconds.
In other words, you may not need to pay a down payment at all – that second loan could pay it for you.
Now, you will have to pay it back, and it will raise the amount of your monthly payment, but this program allows you to get into a home that may not have been possible otherwise.
Be aware that not all lenders offer this portion of the program.
More Flexibility On The Source Of Your Down Payment
I just told you about the option to get a second mortgage (the Affordable Seconds program) to fund your down payment. Still, the Home Possible loan also offers other more flexible options to fund your down payment that are not available on other types of loans, including:
- Gifts (including gifts from family members and friends)
- Grants from the government and other programs
- An unsecured loan
- Employee Assisted Housing (EAH)
- Sweat equity, and, of course
If your credit score is 660 or higher several of the fees you would normally pay at closing won’t be charged.
The minimum credit score to qualify for the program is 580. If your credit score is between 580 and 660 your fees will still be lower than you would otherwise pay, but not as low as they would be if your score was 660+.
Manual Underwriting Option
Many lenders will only evaluate your loan through a process called automated underwriting. Unfortunately, for those with lower income or past credit issues, automated underwriting will usually automatically reject your application.
Manual Underwriting enables the lender to take other factors into account, that can result in loans being approved that would otherwise be denied. The Home Possible program allows manual underwriting for loans using this program.
Freddie Mac Home Possible Loans Can Also Be Used For Owner-Occupied 2- to 4-Unit Properties And Roommates
One of the underutilized options when buying a first or subsequent home is the option to buy a duplex, triplex, or four-plex, live in one of the units, and rent the others out. The potential income from those other units can be used to qualify for a mortgage because it can be used to pay that mortgage. We frequently see situations where people live for free or almost for free using this option.
Good news, Freddie Mac’s Home Possible Program can be used in those situations too. We’d love to talk with you if you’re interested in this strategy.
One other important aspect of the Home Possible program is that it can also take into account roommates whose rent helps pay your mortgage. As long as they’re not your spouse or domestic partner, have lived with you at least one year and will continue living with you in the new property, the amount they pay you in rent can be counted as part of your income to get into a Home Possible Loan.
Home Buyer Education
One of the other advantages of a Home Possible loan is that, if this is your first-time home purchase, home buyer education is required to get into the program. While some might see this as yet another requirement, it’s actually a huge advantage, because these programs teach you many of the essential things you need to know to successfully own a home.
Disadvantages Of The Home Possible Program
Of course, anything that sounds good, also has some disadvantages:
Not Everyone Offers Home Possible Loans
You may have to shop around a bit to find a lender who will help you get a Home Possible loan. CTA
Home Possible Loans Only Apply To Your Primary Residence
These types of loans cannot be used for investment properties, second homes, or vacation homes. Any property purchased through the Home Possible program must be your primary residence, meaning the home you live in for the majority of the year. However, as mentioned above, it can be used for multiple-family dwellings (2- to 4-plex properties) as long as you live in one of the units and rent out the others.
The Bottom Line: Home Possible May Help You Get Into A Home
If you qualify, the Home Possible program can be a great way for you to get into a home that you may not otherwise qualify for.
Interested? We’d be happy to help you find a lender to help you get into the Home Possible or a similar program.
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