What Is Freddie Mac’s Home Possible® Loan?

If you have a low income but can afford a monthly mortgage payment and a minimal down payment upfront, Freddie Mac’s Home Possible may be a good option for you. The Home Possible program only requires a 3% down payment and has more flexible borrower requirements than other mortgage options.

Let’s go over what the Home Possible mortgage program is and how to qualify. We’ll cover some cost-saving options from Rocket Mortgage^®. Then, we’ll dive into the pros and cons of the Home Possible program and discuss some alternative loan options.

What Is The Freddie Mac Home Possible Program?

Freddie Mac’s Home Possible program allows first-time and repeat home buyers who have low to moderate incomes to qualify for a mortgage loan. The program offers several benefits to make homeownership more attainable.

Freddie Mac is a government-sponsored enterprise (GSE) under the Federal Housing Finance Agency (FHFA). Freddie Mac was established by Congress in 1970 and taken over by the FHFA in 2008 during the U.S. housing crisis. Today, Freddie Mac offers several loan programs – including Home Possible – that make housing more affordable for low- and moderate-income borrowers.

The Home Possible program was created in 2014. Some of the notable features of the Home Possible loan include a low down payment requirement and cancellable mortgage insurance, as well as less stringent credit score, debt-to-income ratio (DTI) and loan-to-value ratio (LTV) requirements compared to other loan types.

Home Possible Borrower Requirements

In order to take out a Home Possible mortgage, you’ll have to meet a few borrower qualifications. Here’s a list of eligibility requirements you’ll need to secure financing through Home Possible.

• Down payment: The Home Possible program requires a 3% down payment. Some eligible sources for down payment funds include funds sourced from checking and savings accounts, gifts and grants.
• Credit score: You’ll need a credit score of at least 620 to buy a house with a Home Possible mortgage. If you’re interested in a manufactured home, an adjustable-rate mortgage or a no-cash-out refinance, you’ll need a 620 credit score to qualify with Home Possible.
• Income limit: Your total annual income cannot exceed 80% of your area’s median income (AMI). Check out Freddie Mac’s income lookup tool to find the income limit in your area.
• Loan-to-value ratio (LTV): The LTV you’ll need to qualify for a Home Possible loan ranges from 80% – 105%. Speak with your lender to see what LTV you’ll need to be eligible.
• Debt-to-income ratio (DTI): Freddie Mac doesn’t provide a maximum DTI requirement, though borrowers should aim for a DTI equal to or less than 50%. This is a general DTI guideline when qualifying for a mortgage.
• Property type: Owner-occupied primary residences are eligible for Home Possible financing. This loan program can’t be used to purchase investment properties, rental properties or vacation homes. Eligible property types include single-family homes, multi-unit properties, condominiums, cooperative housing (co-ops) and manufactured homes.
• Mortgage insurance: You’ll have to pay a percentage of your total loan balance every year in mortgage insurance. The amount you’ll pay depends on factors like your LTV. But once your total loan amount drops below 80% of your home’s appraised value, you’ll be able to cancel mortgage insurance on the Home Possible loan.

If all borrowers and co-borrowers are first-time home buyers, they will be required to take part in a home buyer education program. The National Industry Standards Committee sets guidelines for Homeownership Education and Counseling and borrowers can sign up locally for any homeownership education program that meets their requirements.

You can also browse your options online with programs like ReadyNest and CreditSmart^®.

Who Are Home Possible Mortgages For?

Promoting affordable housing is a big part of Freddie Mac’s mission. That said, this product is targeted at helping a specific segment of the market who could use assistance in home affordability.

While this program is specifically funded by Freddie Mac, Fannie Mae’s HomeReady^® program is very similar in terms of both qualifications and who it targets. Your lender will be able to help you decide which option is right for you.

So, who should consider a Home Possible loan? Let’s go over the communities that the mortgage program may benefit the most.

Low-Wage Earners

In order to qualify for this particular loan option, the income of all borrowers used to qualify can’t be more than 80% of the area’s median income. This metric is designed to help those with low incomes who can afford their mortgage payments to qualify for home affordability based on a low down payment and, in many cases, more modest fees.

First-Time Home Buyers

Although you don’t have to be a first-time home buyer to take advantage of the Home Possible program, it can certainly be a great option if you are one. Keep in mind that both Fannie Mae and Freddie Mac consider a first-time home buyer to be anyone who hasn’t owned a residential property in the 3 years prior to the new home purchase.

Freddie Mac Home Possible Pros

There are several advantages to a Home Possible mortgage program. Let’s walk through some common pros for home buyers.

Low Down Payment

The first major benefit of this loan option is that it only requires a 3% down payment. This is lower than the minimum 3.5% down payment required for FHA loans.

Special Offers Available

Rocket Mortgage has a couple of special offers available on Home Possible® loans. We understand that elevated rates and high home prices make today’s market challenging for many buyers, and we want to be your partner in this journey. You could save money to begin your loan term or via an upfront credit for your down payment or closing costs.

Welcome Home RateBreak is a 2-1 temporary buydown offer.¹ If you take advantage of this, for the first year of your term, your rate will be 2% lower than the permanent rate applicabl