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If you’re looking for a mortgage on a budget, Freddie Mac’s Home Possible program may be your answer.
Home Possible works with low-income borrowers who can afford a small down payment and their monthly mortgage bill thanks to the program’s looser lending requirements.
What Is the Freddie Mac Home Possible Loan Program?
Freddie Mac is a GSE, or government-sponsored entity, operating under the watchful eye of the Federal Housing Finance Agency.
Freddie Mac aims to make mortgage products affordable for lower-income borrowers, especially those who apply through smaller lenders.
The Home Possible program is Freddie’s initiative to make mortgages – and by extension homeownership – affordable for lower-income families.
These conforming loans(loans written according to Freddie Mac’s standards) come with flexible eligibility and down payment requirements to remove the usual barriers to homeownership.
To qualify, you need to put 3% down upfront, have at least a 660-credit score, and make 80% or less than the area median income.
That said, you don’t need to cover the 3% down out of your own pocket. Unlike some programs, Home Possible allows borrowers to front their down payment from gifted funds or a down payment assistance program.
How Do Home Possible Loans Work?
When you buy a loan under the Home Possible program, you’re not purchasing through Freddie Mac.
Instead, you can start by contacting the mortgage lenders of your choice and letting them know you want a Home Possible mortgage.
Once you’ve shopped around and compared fees, you can choose the one that works best for you.
Your lender should then walk you through the mortgage process, starting with the qualification process. You’ll have to provide contact, identifying, and financial information, among other data.
After you’re cleared for a Home Possible mortgage, you can apply for either a fixed- or adjustable-rate mortgage.
Note that if you go with a Home Possible Advantage mortgage, you’re restricted to fixed-rate loans.
And if you’re a first-time homebuyer under the program’s definitions, you’ll have to take an approved homebuyer education course.
Who Is Eligible for a Home Possible Loan?
You may be eligible for a Home Possible loan if you:
- Have a credit score of 660 or higher
- Make no more than 80% of the area median income
- Can front 3% down (with or without assistance)
- Can prove stable income and employment
- Have a debt-to-income ratio(including your new mortgage) under 45%
- Have taken an approved homeownership education program (for first-time buyers)
Additionally, at least one applicant must intend to owner-occupy the residence as their primary home after closing.
>> More: How to Apply for a Mortgage
What Are Home Possible Mortgages For?
Freddie Mac’s mission is to promote and provide affordable housing through its lending programs.
Home Possible, in particular, is geared toward borrowers who may otherwise be denied a mortgage.
First-Time Home Buyers
Though you don’t have to be a first-time homebuyer to qualify, Home Possible may make getting into your first home easier.
Freddie Mac defines a first-time homebuyer as someone who hasn’t owned a home in the last three years.
Low-Income Borrowers
While being a first-time homebuyer isn’t a requirement, being a low-income borrower is. Freddie Mac defines “low-income” as anyone making less than 80% of the area median income.
This lets those with smaller paychecks qualify for homes based on a lower down payment (and often lower fees, too).
>> More: How to Choose the Best Mortgage
What Are the Benefits of Home Possible Mortgages?
Home Possible mortgages come with several benefits, including:
Attainable Credit Score Requirements
Home Possible mortgages require a minimum credit score of 660.
While this is slightly higher than many lenders’ conventional loanminimum of 620, it’s still an attainable goal – and may come with a better interest rate as a result.
Low Down Payment
Borrowers in this program only need to front 3% down to qualify, compared to many programs’ 3.5% to 5% minimum.
Flexible Down Payment Funding
In addition to only requiring 3% down, you can also fund your down payment with:
- Gifted funds
- A second mortgage
- Down payment assistance programs
- And even financial assistance from your employer
And unlike some loan programs, Home Possible allows you to buy a 1-unit primary residence with 100% gifted down payment funds.
Low Fees
Many low-income borrowers qualify for lower lender fees under Home Possible, depending on the specific loan.
For instance, VA loans limit your closing costs, though they require a special origination fee depending on your eligibility. And Freddie Mac notes that loans over 80% LTV have capped credit fees.
Underwriting Assistance
Many lenders offer manual mortgage underwriting to keep algorithms from automatically rejecting applicants to ensure that qualified borrowers can access the Home Possible program.
A manual process also provides a chance to ask questions about the program and your lender.
Low LTV
Your loan-to-value ratio, or LTV, measures what you owe on your loan against the value of your house.
Depending on the lender and program, you may need an LTV between 80-97%, which translates to a down payment of 3% to 20%
But with Home Possible, you can finance up to 105% of your home’s value, which allows for your down payment to be funded with a second mortgage under the Affordable Seconds program.
Range of Viable Properties
Freddie Mac doesn’t limit you to 1-unit homes under the Home Possible program. Instead, you can purchase a range of primary residences, including:
- 1- to 4-unit homes
- Condos
- Planned-unit developments
- Manufactured homes (within eligibility requirements)
And unlike other loan programs, you can list co-borrowers who won’t live in the home on your application for 1-unit residences.
What Are the Disadvantages of Freddie Mac Home Possible®?
Home Possible mortgages provide many benefits – but they do have some limitations, such as:
Limited Lenders
Not all lenders offer Freddie Mac loans, nor do all online mortgage lenders work with the Home Possible program. As such, you may have to shop around to find a satisfactory lender.
Residence Limitations
While you can buy several types of properties, you’re limited to primary residences for Home Possible mortgages. In other words, second, vacation, and investment properties aren’t allowed.
Home Buyer Education
If you’re a first-time homebuyer, you’ll have to pay for a homebuyer education course that meets the National Industry Standards for Homeownership Education and Counseling. Though you will be able to write off the cost at closing.
>> More: How to Buy a House
Stricter Lending Requirements
Unlike some low-income programs, Freddie Mac requires a FICO score of at least 660 to qualify, which is higher than many lenders’ conventional loan requirements.
Additionally, Home Possible loans are restricted to borrowers who make 80% or less of the area median income.
Home Possible Loan Income Limits
Since 2019, Freddie Mac has required that a borrower’s qualifying income cannot exceed 80% of the area median income for the home’s location.
To see if you qualify, you can use Freddie Mac’s Income and Property Eligibility Tool.
Home Possible Loan Interest Rates and Mortgage Insurance
Home Possible loans boast competitive rates and fees. That said, your specific costs will vary based on your income, down payment, term, and credit score.
And if you put down less than 20%, you’ll be on the hook for private mortgage insurance– though coverage requirements do fall after you reach at least 10% equity.
Alternatives to Freddie Mac Home Possible® Loans
If you don’t qualify for a Home Possible loan or prefer a lender with better terms, you may be eligible for one of the programs below.
VA Loans
VA home loansare available to veterans, active-duty service members, and qualifying reservists and spouses.
They typically require 0% down, a FICO credit score between 580-640, and a variable debt-to-income ratio based on lender requirements.
FHA Loans
The U.S. Federal Housing Administration sets the requirements for and backs FHA loans.
Lenders may accept a credit score as low as 500 with a higher down payment or favorable debt-to-income ratio.
USDA Loans
USDA loans don’t require a down payment if you have a household income under 115% of the area median.
Other requirements include geographic limits, a FICO score between 580 and 640 according to the lender’s policies, and a DTI no higher than 41%.
Conventional Loans
Conventional loans are non-government-backed mortgages that follow the conforming limits set by Fannie Mae and Freddie Mac.
While exact specifications vary by lender and situation, you can usually expect a 3-5% down payment minimum, credit score requirements of 620 to 660, and a DTI maximum of 50%.
>> More: Compare Government Home Loans
Fannie Mae HomeReady Loan
The Fannie Mae HomeReady loan program is similar to Freddie Mac’s Home Possible program. With Fannie Mae’s HomeReady, you’ll need:
- At least 3% down
- A FICO score between 620 and 680
- A 50% DTI maximum
- An annual income under 100% of the area median income
HomeReady also has flexible borrowing requirements, such as using income from non-borrower household members to help you qualify.
Freddie Mac Home Possible Loan FAQs
Can You Refinance with a Home Possible Loan?
Yes! You can use a Home Possible loan for a rate-and-term refinance or refinance your Home Possible loan into another program. However, cash-out refinances are prohibited.
>> More: How to Refinance Your Home Loan
What’s the Difference Between HomeReady and Home Possible?
Fannie Mae’s HomeReady and Freddie Mac’s Home Possible programs are similar in target demographic and qualifying factors.
However, they do have some differences – notably in HomeReady’s looser requirements, such as:
- A lower minimum credit score of 620
- A higher DTI up to 50%
- Making up to 100% of the area median income
What’s the Difference Between HomeOne and Home Possible?
Freddie Mac also offers the HomeOne program, which lets you borrow a mortgage with just 3% down.
However, HomeOne requires at least one borrower to be a first-time homebuyer for purchase loans.
Do I Have to Be a First-Time Home Buyer for Home Possible?
Nope! First-time homebuyers, repeat buyers, and current homeowners who want to refinance are all eligible to apply for Home Possible.
What Is the Minimum Credit Score for Home Possible?
Freddie Mac requires a FICO score of 660 or higher to be eligible for a Home Possible loan.
Bottom Line: What Is Freddie Mac Home Possible®?
Freddie Mac’s Home Possible Program targets lower-income borrowers who need a low-cost loan to get into their house.
If you make 80% or less than the area median income but would rather pay a monthly mortgage instead of lining your landlord’s pocket, Home Possible might be the loan program for you.
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