Freddie Macs Home Possible Mortgage Eligibility Requirements

Table of Content

• Investment property loan requirements
• The Bottom Line: Freddie Mac Home Possible® Is A Way To Make Homeownership Possible
• Estimate your monthly payment
• What Is Freddie Mac’s Home Possible® Loan?
• First Time Home Buyer Programs

During pre-approval for a first-time home buyer loan, your lender can also lock in an interest rate. To apply for a grant, you’ll need to find out the qualification requirements for your area because these requirements can vary depending on where you want to buy. Most grants will want a higher credit score of at least 640 and may be limited based on your family size or location. Talk to your trusted mortgage lender to find out if grants are available in your area.

USDA loans don’t typically require cash reserves unless you’re applying for an exception for a high DTI ratio. Your total household income is counted, including non-borrowers. All family member incomes must be included in the calculations to make sure the total income is at or below your neighborhood income limits. VA-approved lenders must order appraisals through the VA’s online system. The VA appraisal can only be completed by a VA-approved appraiser to verify the property meets minimum VA property standards.

Investment property loan requirements

That’s why it’s essential to talk to your mortgage lender about which loan programs might be best for you. If you’re a first-time home buyer, there are several types of loans you can apply for when purchasing a home. Many of these loans are gratefully more forgiving on their eligibility to help first-time borrowers. Now let’s say you have other debt — maybe a car payment, a student loan, and credit card payments. Your lender might say you can only afford to spend up to 25% of your gross monthly income on housing expenses. Most home loan programs require two years of consecutive employment or consistent income, either with the same employer or within the same field.

For the purposes of these loan options, that means not having a 30-day late payment in the last 6 months and only one in the last year. If you plan to have someone rent a room or part of the property from you, you can also use your future rental income to qualify you for the loan. To do this, the renter cannot be on the mortgage, must have lived with you for at least one year, and cannot be your spouse or domestic partner. Youll also need to provide documentation of paid rent for the last 12 months. Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation which has not been reviewed by Underwriting.

The Bottom Line: Freddie Mac Home Possible® Is A Way To Make Homeownership Possible

The loans are not subject to any geographic restrictions. Borrowers do not have to pay a prepayment penalty if they pay off a mortgage under either program early. If you’re buying a house with low income, these other factors can help you qualify. For example, a higher credit score or bigger down payment could make up for a lower income and higher DTI. Your mortgage lender will look at your entire financial profile — not just income — to see if you can afford a home.

If you do, there aren’t any restrictions regarding how much income you can make. Can a borrower qualify for a Home Possible mortgage if they own another property? Yes, the occupying borrower may have an ownership interest in one additional financed residential property. You must prove you have the income and stable employment to maintain the payments. If a parent or relative with an established credit history agrees to join your loan as a cosigner, you’ll have a much better chance of financing approval. These courses generally go over the mortgage process, money management strategies and the importance of a solid credit background.

Estimate your monthly payment

Clients can get this locally through any homeownership education program that meets the standards of the National Industry Standards for Homeownership Education and Counseling. Alternatively, there are a couple of online homeownership education providers that you can use as well in ReadyNest and CreditSmartⓇ. Since Freddie Mac’s mission involves making homeownership affordable for all, the Home Possible Program was designed specifically to target low-income borrowers. Freddie Mac defines low income as 80% of the geographical area’s median income, though there are more specific limitations in the fine print of the program. More specifics on income requirements and limitations are reviewed later in this article. For most first-time home buyer loans, you’ll need a credit score of at least 580.

Accelerated home price appreciation is cited as the driving factor in the 2023 limits. There was a time when you needed 20% down in cash to purchase a home. Home Possible is available to anyone who makes less than 80% of the average monthly income for the ZIP code they will be buying in, Ralph DiBugnara, founder of Home Qualified, says.

What Is Freddie Mac’s Home Possible® Loan?

If you are a credit-worthy borrower that just doesn’t have a large down payment, you may be a good candidate for the Home Possible program. This Freddie Mac program provides you with conventional financing while only requiring a 3% down payment. In short, HomeReady applies more flexible qualification guidelines to enable more borrowers to participate in the program. The Home Possible program also enables borrowers to use a non-occupant co-borrower and incorporate non-traditional income sources in their loan application. The LTV ratio is less than or equal to 90 percent for manually under- written mortgages (105 percent CLTV for mortgages with Affordable Seconds®.). The debt-to-income ratio is less than or equal to 43 percent based on the occupying borrower’s income for manually underwrit- ten mortgages.

Conventional loan guidelines typically require a home appraisal, which is an unbiased opinion of a home’s value from a licensed property appraiser. Borrowers making at least a 20% down payment on a one-unit home may be eligible for a property inspection waiver and can skip a home appraisal. Conventional loans, which remain the most popular mortgage option, aren’t guaranteed by any government agency. Instead, lenders that offer conventional home loans follow rules set by government-sponsored enterprises Fannie Mae and Freddie Mac, which tend to be more stringent than government-backed mortgages. One unique aspect of the Home Possible program is the amount of income that is allowed. Because the program is for low to moderate-income families, you can only make a certain amount of money in order to qualify for the loan.

Cons of Home Possible mortgages

The maximum loan-to-value ratio for a Home Possible loan is 97 percent. Or, with Freddie Mac’s Affordable Seconds — a second mortgage that can help cover the down payment and closing costs — a combined LTV of 105 percent is allowed. Home Possible loans are originated through private lenders, so borrowers have the ability to shop around for their mortgage lender and compare interest rates.

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 PossibleSM and RefiNow™ 1, respectively. Freddie Mac also offers a different loan program called HomeOne. Like Home Possible, it offers loans for as little as 3 percent down.

The second is the annual mortgage insurance premium that ranges from 0.45% to 1.05% of the loan amount and is divided by 12 and added to your monthly payment. In this case, the higher your credit score, the more likely it is that a lender will accept a higher debt ratio. A higher credit score lets a lender that you are financially responsible. You pay your bills on time and you don’t overextend yourself financially. This will make it easier for a lender to accept a higher DTI. If you are a low to moderate-income family, you may be eligible for the Freddie Mac Home Possible Mortgage.

Rather than mortgage insurance, USDA loans require guarantee fees that work much like FHA mortgage insurance. You’ll pay an upfront guarantee fee of 1% of your loan amount, which is typically rolled into your loan amount. You’ll also pay an annual fee of 0.35% of your loan amount that’s divided by 12 and added to your monthly mortgage payment. Be aware that you will also be required to pay private mortgage insurance on a Home Possible loan.

The maximum debt ratio allowed on the program is also up to lender discretion. However, you may find lenders that prefer lower debt ratios. If you have a DTI that is close to 43%, you’ll want to make sure that your compensating factors are there. Mortgage insurance can be cancelled if the LTV ratio falls below 80%, and coverage requirements are reduced for LTV ratios above 90%. For loans with an LTV ratio above 80%, credit fees are capped and are less than standard fees.

FHA loans, another government-sponsored mortgage assistance program, have much more lenient credit lending terms. However, you may need reserves equaling three to six months of your monthly payments if you’re buying a multi-unit property or renting out your current home while purchasing a new one. Lenders measure your debt-to-income ratio by dividing your total debt by your gross monthly income. Conventional lenders prefer a DTI of 45% or less but may bump it to 50% with higher credit scores and additional mortgage reserves. Homeownership education is required when all clients on the loan are first-time home buyers.