May 27, 2024
What You Need to Know About Freddie Mac Home Possible Advantage Mortgage

What You Need to Know About Freddie Mac Home Possible Advantage Mortgage

Buying a home can be a challenge for anyone, but especially for lower-income homebuyers who may not have a large down payment. Luckily, there are some home loan programs, including Freddie Mac Home Possible, designed to help borrowers who might not meet traditional requirements.

Learn more about the advantages and drawbacks of Freddie Mac Home Possible and how to qualify to help you decide if it’s right for you.

What Is the Freddie Mac Home Possible Program?

The Freddie Mac Home Possible program is a low-down-payment conventional mortgage program designed to help lower-income homebuyers achieve home ownership. Freddie Mac, a government-sponsored lender established by Congress in 1970 to help ensure stability in the mortgage market, launched the program in 2014. Around 80% of Home Possible borrowers in 2022 were first-time homebuyers.

“Home Possible helps borrowers realize the milestone of homeownership without the barrier of gathering a 20% down payment,” says Danny Gardner, senior vice president of Single-Family Client and Community Engagement at Freddie Mac. “Despite the rapid increase in mortgage rates over the past year, Freddie Mac purchased more than 70,000 Home Possible mortgages in 2022.”

Is Freddie Mac Home Possible a Good Option?

Home Possible is worth exploring for anyone who might need more flexible mortgage options, explains Malcolm-Wiley Floyd, CEO and co-founder of Stairs Financial, a licensed mortgage broker. “In light of higher home prices, Home Possible’s 3% minimum down payment is attractive, and the fees are often lower than comparable mortgage products,” he says.

Another benefit is that borrowers have a lot of flexibility with the type of property they can finance with Home Possible, says Gardner.

Even in a rising interest rate environment, which can decrease home affordability and put upward pressure on aspiring homebuyers’ monthly payments, Floyd says a program like Home Possible can help by capping fees and serving buyers who might have weaker credit. “Home Possible makes it easier to buy while rates are still high,” he says.

Can I Qualify for the Home Possible Program?

Like all mortgages, the Freddie Mac Home Possible program has a set of qualifications that you must meet in order to be eligible for the loan. These include:

  • The home must be used for at least one borrower’s primary residence.
  • You must meet the income limits for the area.
  • You cannot have ownership in more than two additional financed residential properties.
  • The credit score minimum is 660 for purchase transactions or 680 for no cash-out refinances. But some borrowers without credit scores can still qualify for loans with a loan-to-value ratio, or LTV, of up to 95%.
  • If all borrowers are first-time homebuyers, at least one must complete homeownership education.

Mortgage rates increased again this week, according to the Mortgage Bankers Association. Interest rates are expected to remain higher for longer until the economy cools down and inflation shows signs of slowing.

Looking forward, mortgage interest rates are still forecasted to decline somewhat throughout 2024, as the Federal Reserve projects rate cuts will begin sometime later this year. Here are the current mortgage rates, as of April 24:

  • 30-year fixed: 7.24% with 0.66 points (previous week: 7.13% with 0.65 points).
  • 15-year fixed: 6.75% with 0.64 points (previous week: 6.64% with 0.64 points).
  • 5/1 ARM: 6.64% with 0.87 points (previous week: 6.52% with 0.6 points).
  • 30-year jumbo loans: 7.45% with 0.56 points (previous week: 7.4% with 0.46 points).
  • 30-year FHA loans: 7.01% with 0.94 points (previous week: 6.9% with 0.99 points).

Home Possible Program Income Limits

According to Freddie Mac, the borrower’s qualifying income converted to an annual basis must not exceed 80% of the area median income, or AMI, of the property location. This means the income limits will be different depending on where you want to buy a home, says Floyd.

To figure out if you qualify, your loan officer will enter the home’s address into Freddie Mac’s website to see the income limit for that specific census tract. Some good news is that the Federal Housing Finance Agency updated the AMI limits in May 2023, thus expanding the pool of people who can qualify for Freddie Mac Home Possible.

How to Apply For a Freddie Mac Home Possible Loan

  • Assess your situation. Look at your credit reports from Experian, Equifax and TransUnion. Then crunch your numbers to figure out how much down payment you have available and the maximum monthly expenses you can cover. You can use a mortgage affordability calculator to help you.
  • Find a lender that is well-versed in Home Possible and other programs. “Freddie Mac has invested a lot of resources to make sure that Home Possible loans are available nationwide, but it’s still worth asking your loan officer how much experience they have with them,” says Floyd. Ask how many Home Possible loans they’ve originated in the past year, or if you can work with a particular loan officer who might be an expert in that product.
  • Start the application process with your chosen lender. Prepare key documents like W-2s, bank statements, tax returns and paystubs, along with your identification. Applications can be done online, by phone or in person depending on the lender.
  • Keep tabs on the timeline and answer any underwriting questions promptly. Things may come up during the process, but your lender will work with you to keep things moving.

Freddie Mac Home Possible Pros and Cons

Pros Cons
A home loan that only requires 3% down. It may be harder to find a lender familiar with the program.
The program offers competitive rates and fees. The loan must be used for primary residence.
You have more flexibility on down payment sources including gifts, employer-assistance programs, secondary financing and sweat equity. There is no flexibility on income limits. 

Alternatives to the Freddie Mac Home Possible Program

If you decide that Freddie Mac Home Possible isn’t right for you or you don’t meet the qualifications, there are other low- or no-down-payment products mortgages available. These include:

  • FHA loans. Backed by the Federal Housing Authority, these loans offer lenient credit score requirements and only require a 3.5% down payment. The downside is the upfront and ongoing mortgage insurance premium and stringent property requirements.
  • Conventional loans. You can get conventional loans with just 3% down, but you’ll pay mortgage insurance until you meet the equity threshold and have to meet fairly strict borrower credit and income standards.
  • Fannie Mae Home Ready loans. Similar to Home Possible, Fannie Mae also offers a loan program with just 3% down based on income eligibility.
  • VA home loans. If you’re a military member, veteran or the spouse of one, the Department of Veterans Affairs backs these very attractive home loans. You can get a loan with zero down and low interest rates.
  • USDA loans. The U.S. Department of Agriculture backs these loans for rural homebuyers. No down payment is required, but there are property eligibility requirements to meet.

Is Freddie Mac Home Possible Right for You?

“Home Possible is a great product for many homebuyers, but there are thousands of different home buying programs and options with different features and benefits,” says Floyd. In general, buyers that have the most success shopping for a mortgage have done their homework up front.

Be sure to lean on experts and advisors like housing counseling agencies and real estate professionals, said Gardner. In addition, try using Freddie Mac’s CreditSmart financial education, which is available at no cost and a valuable resource for first-time homebuyers.

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