Freddie Mac Home Possible – Lendexa Mortgage

Freddie Mac
Home Possible®

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Benefits

Eligibility

What is Freddie Mac Home Possible®?

Freddie Mac Home Possible® is a mortgage program designed to assist low-to-low-income borrowers in achieving homeownership. It stands out for its minimal down payment requirement—only 3%! Plus, it offers a range of flexible options, such as including co-borrowers who don’t live in the home, and allowing borrowers to have another financed property, all with the convenience of a conventional mortgage.

Understanding Freddie Mac

Freddie Mac, officially known as the Federal Home Loan Mortgage Corporation (FHLMC), is a government-sponsored enterprise (GSE) in the United States, akin to Fannie Mae. Established in 1970, its primary aim is to expand the secondary mortgage market, similar to Fannie Mae, but with a focus on creating competition and limiting monopolistic practices. By securitizing mortgages, it enables lenders to reinvest their assets into more lending, thereby enhancing the availability and affordability of mortgage credit across the country.

Like Fannie Mae, Freddie Mac does not originate loans directly to consumers. It operates predominantly in the secondary mortgage market, where it plays a critical role in ensuring liquidity, stability, and accessibility in the housing market. This is achieved by purchasing and guaranteeing mortgages from other financial institutions, which in turn facilitates a more robust and dynamic lending environment for homebuyers.

Who is the Ideal Candidate for a Freddie Mac Home Possible® Mortgage?

Wondering if a Freddie Mac Home Possible® mortgage is the right choice for you?

This program is specifically designed for:

Low-income individuals.
First-time homebuyers, as well as move-up borrowers and retirees.
Those seeking a low down payment option.
Borrowers who have multiple sources of income, including non-traditional income like rental income.
People aiming to purchase or refinance a one-unit residence, including those considering secondary financing options.

What Makes the Freddie Mac Home Possible® Mortgage Unique?

Here’s what distinguishes the Freddie Mac Home Possible® mortgage from other traditional mortgage options:

Low Down Payment: Offering as low as 3% down payment, it eases the burden for home purchases and allows for higher refinance loan balances.
Flexible Down Payment Sources: Accepts various sources for the down payment, such as family contributions, employer-assistance programs, and secondary financing, with no minimum personal funds requirement.
Income Flexibility: Considers the incomes of all occupants as part of the qualifying income, not just the borrower’s, which can be advantageous for multi-income households.
Property Variety: Allows a range of property types, including 1-4 unit properties, condos, and co-ops, offering more options for potential homeowners.
Cancellable Mortgage Insurance: Offers the possibility to cancel mortgage insurance once equity reaches a certain level, which can lead to long-term savings.

Key Freddie Mac Home Possible® Guidelines

To successfully apply for a Freddie Mac Home Possible® mortgage, it’s important to understand its guidelines. Here are the key aspects:

Income Limits: Your income must not exceed 80% of the area’s median income (AMI).
Property Eligibility: Eligible properties include 1-4 unit residences, condos, and co-ops. The property must be a primary residence.
Credit Score: There is a minimum credit score requirement, with more favorable terms for higher scores.
Mandatory Homeownership Education: Homeownership education is required, empowering borrowers with knowledge for responsible homeownership.
Debt-to-Income Ratio: Applicants must have a favorable debt-to-income ratio to qualify.
Multiple Sources of Income: Considers various sources of income, including non-traditional ones, in the income calculation.
Mortgage Insurance: Required, but can be cancelled when certain conditions are met.
Refinancing Options: Refinancing options are available under specific terms.

Understanding and adhering to these guidelines can significantly improve your chances of qualifying for a Home Possible® mortgage.

Home Possible vs HomeReady: Which is Right for You?

HomeReady from Fannie Mae and Freddie Mac’s Home Possible are both tailored for low-to-moderate-income borrowers, offering similarities like low down payments and flexible credit requirements. However, key differences exist, namely in the way they calculate income and consider some debt payments.

Either of these programs is a great fit for buyers who meet the income and credit criteria. Ultimately, the minutiae of underwriting guidelines may determine which option best fits your situation.

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Pros & Cons of Home Possible Mortgages

Pros

Low Down Payment

A standout feature is the minimal down payment requirement, as low as 3% for 1 unit homes. This makes homeownership more attainable for those who cannot afford a large down payment.

5% down payments are available on multi-unit homes, too, making this a perfect fit for house hacking.

Flexible Funding Sources

Down payments can be sourced from family gifts, employer-assistance programs, secondary financing, or sweat equity. This flexibility is particularly beneficial for borrowers with limited personal savings.

Income Limits Geared Towards Low-to-Moderate-Income Borrowers

Specifically targets individuals with incomes at or below 80% of the Area Median Income (AMI). This focus supports those who typically struggle to qualify for conventional mortgages.

Wide Property Eligibility

Eligible properties include 1-4 unit residences, condominiums, co-operatives, and planned unit developments. This variety allows for a broad range of housing options.

Capped Credit Fees

For loans with a down payment less than 20%, the credit fees are lower than standard fees, potentially reducing overall loan costs.

Mortgage Insurance Cancellation Option

Borrowers can cancel their mortgage insurance once the loan balance falls below 80% of the home’s appraised value, offering a path to reduced monthly payments.

Cons

Income Limitations

The income cap at 80% of AMI may exclude moderate-to-high-income borrowers, limiting the program’s applicability. This may also make it difficult to use this program in cities with lower median income limits.

Property Type Restrictions

Some types of properties, like manufactured homes, face specific higher down payment restrictions, which can limit options for certain borrowers.

Mortgage Insurance Required for Lower Down Payments

Although mortgage insurance can be canceled later, its initial requirement increases the monthly payment, especially for those making smaller down payments. Alternatively, a buyer can pay the mortgage insurance premium up front, but that increases the cash needed from them at closing.

Possibility of Higher Interest Rates

Depending on individual circumstances and market conditions, interest rates for Home Possible mortgages might be higher than those for traditional loans, impacting long-term affordability.

Complexity and Eligibility Criteria

The program’s various requirements, including income limits and property types, can make navigating and qualifying for the loan more complex for some borrowers.

How to Apply for a Freddie Mac Home Possible® Loan

To apply for a Home Possible® loan, start by collecting the necessary documents, including proof of income, any rental income records, and details of your current debts. It’s beneficial to work with a lender experienced in Freddie Mac loans, as they can guide you through the application process and ensure you meet all program requirements.

When comparing HomeReady with FHA loans, some key differences emerge:

How to Apply for a Fannie Mae HomeReady Loan

To apply for a HomeReady loan, gather the necessary documents, such as proof of income, rental income records, and information on your current debts. JVM Lending is very experienced in providing Fannie Mae loans and can guide you through the process and ensure you meet all the program requirements.

Frequently Asked Questions

Is There an Educational Component to Home Possible® Mortgages?

Yes, Freddie Mac Home Possible® requires homeownership education for all first-time homebuyers. This requirement can be fulfilled through Freddie Mac’s CreditSmart® program.

What Are The Home Possible® Income Limits?

Home Possible® mortgages have income limits set at 80% of the area’s median income (AMI), with these limits being updated regularly. For the current year, the adjustments ensure the program remains accessible to its target demographic. It’s important to verify the Freddie Mac Home Possible® income limits for your area to determine eligibility.

How Can You Check Your Income Eligibility for Home Possible®?

To check your eligibility, Freddie Mac offers an online Home Possible Income & Property Eligibility Tool. This interactive tool lets you easily verify income eligibility based on area or property address, making it simpler to assess your qualifications for the Home Possible® program.

What Are The Freddie Mac Loan Limits?

Loan limits for Freddie Mac vary based on local median income and housing costs. In higher-cost areas, these limits are increased to ensure adequate funding availability. To understand your borrowing capacity, it’s essential to check the current Freddie Mac loan limits for your specific area.

Can I include a co-borrower who doesn’t live in the home?

Yes, Home Possible® allows for co-borrowers who do not reside in the home.

What types of properties are eligible for Home Possible mortgages?

Eligible properties include 1-4 unit residences, condos, co-ops, and planned-unit developments, among others.

Take the Next Step with Lendexa Mortgage

Embarking on the journey towards a Freddie Mac Home Possible® Mortgage means understanding its unique aspects to make a well-informed decision. Ideal for first-time buyers or those looking to refinance, the Home Possible® program caters to diverse financial needs. Ready to move forward in your homeownership journey?