HomePossible

What is HomePossible?

HomePossible requires borrowers to put down no more than three to five percent of the home’s purchase price. The down payment is flexible, meaning, the funds can come from a variety of sources, such as a family member, assistance from an employer, or secondary financing from a third-party company.

However, borrowers must contribute at least three percent of their funds toward the transaction before accepting any additional source of funds, such as a gift.

Since HomePossible allows borrowers to make a small down payment, they are required to purchase mortgage insurance (MI), a premium will be added to your monthly mortgage payments. HomePossible’s mortgage insurance is affordable and under certain circumstances, can be removed from the mortgage. Generally, to eliminate mortgage insurance, a borrower’s loan-to-value ratio must reach 80%.

Do ARMs work with HomePossible?

Yes, adjustable-rate mortgages (ARMs) work with HomePossible. Work you’re your lender to find the best options for you. Keep in mind, certain regulations need to be met.

For example, HomePossible can be financed as a 5/1 or 5/5 ARM with an original maturity not greater than 30 years on one- or two-unit properties (excluding manufactured homes). HomePossible can also be financed as a 7/1 or 10/1 ARM with an original maturity not greater than 30 years on one- to two-unit properties. You can ask your lender for an outline of what to expect when using an ARM HomePossible mortgage.

What are HomePossible guidelines?

There are also maximum loan-to-value (LTV) ratios borrowers must meet according to their property type. For example, a one- to four-unit property must have an LTV ratio of 95 percent. HomePossible is available to those who are purchasing a single-family home with low to moderate funds. To be considered eligible, borrowers need to meet income limits and the property location must be marked in a low-income area. Freddie Mac utilizes an income eligibility tool to look up the qualified income requirements based on a home’s address. Borrowers must occupy the home as their primary residency to receive financing.

Borrowers that decide to use HomePossible are required to complete an educational course that helps them prepare for the mortgage process. It is required by Freddie Mac, so borrowers know what to expect as a future homeowner. This also gives lenders reassurance borrowers are informed of how the process works. HomePossible education is only required for first-time homebuyers or borrowers with Noncredit Payment References.

HomePossible also requires borrowers to receive housing counseling from a Housing Urban Development (HUD) agency. The agency must be a HUD-approved nonprofit housing counseling organization. This requirement is intended to further educate borrowers and prepare them for the responsibility that comes with homeownership. The education provided within this program illustrates the importance of wisely managing your money so mortgage payments, in addition to other home-related costs, are taken care of promptly.

The loan’s purpose is only used for a purchase transaction (no cash-out refinances allowed). HomePossible mortgages can only be used on one to four-unit properties, or manufactured homes. The source of funds to finance the down payment and closing costs can come from many resources, such as a gift from a family member, or financial aid from a third-party association.

HomePossible requires borrowers to have cash reserves after closing. Lenders like to see borrowers have at least two months’ worth of money set aside for mortgage payments. The amount depends on the type of property financed. For example, a one-unit property requires zero cash reserves. Two- to four-unit properties require two months’ cash reserves.

What are HomePossible guidelines?

The credit score required for a HomePossible mortgage ultimately depends on the property type and the term of financing.

For example, a one-unit HomePossible loan requires a minimum credit score of 660. A two- to four-unit property requires a credit score of 700, and manufactured homes require 720.

What is the Freddie Mac First Look Initiative?

The First Look Initiative is offered by Freddie Mac and gives owner-occupant homebuyers and select non-profits the ability to purchase HomeSteps properties during the first 20 days of listing.

What is a HomePossible matrix?

HomePossible is a special loan program that is designed to help low to moderate-income borrowers. Borrowers can become eligible depending on the property’s address and income limit amount. Freddie Mac has created a product matrix that clearly illustrates the program’s eligibility requirements, property type, income limit, mortgage insurance coverage, and more. Below is Freddie Mac’s official PDF that covers everything you need to know: here

What is the difference between HomePossible and an FHA loan?

FHA loans require borrowers to make a down payment as little as 3.5% of the market value. It also welcomes borrowers with credit scores as low as 580 to apply. This mortgage loan is appealing to borrowers that have limited funds and below-average credit scores. Since FHA loans allow borrowers to make a small down payment, lenders will issue private mortgage insurance (PMI). This insurance premium only protects the lender if the borrower stops making mortgage payments. The premium will be calculated into the total loan balance and monthly mortgage payments. Borrowers can eliminate PMI when the balance of their mortgage reaches 80% of the new appraised value of your home.

HomePossible is a conventional mortgage that allows borrowers to make a low down payment of three to five percent of the home’s market value. However, this product only permits a 30-year fixed-rate mortgage on one-unit properties. HomePossible’s credit score requirements also vary depending on the type of home purchased, in addition to income limits and homebuyer education. Utilizing a HomePossible mortgage could save borrowers hundreds of dollars in interest because lenders can offer lower interest rates compared to other loan products.