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Do you need a little extra help financing a home? A Freddie Mac Home Possible loan might be for you. The Home Possible loan is designed to help first-time home buyers and borrowers with low to moderate incomes qualify for a mortgage. Although these loans have a number of specific requirements, a few basics are easy to get: Down payments start at 3%; family members can help with your down payment and may be able to co-borrow with you; and you may even get approved without a credit score.
What Is a Freddie Mac Home Possible Loan?
Freddie Mac is a nickname for the Federal Home Loan Mortgage Corporation. In addition to buying mortgages from lenders like banks and credit unions and selling the debt on the secondary mortgage market, Freddie Mac and its sister agency Fannie Mae help set standard requirements for conventional mortgages. For homebuyers and borrowers who might have a tough time meeting those requirements, Freddie Mac and Fannie Mae also promote special programs to encourage homeownership for folks like first-time homebuyers and borrowers with low to moderate income.
Home Possible is one of these programs. Requirements for the Home Possible loan are designed to help homeowners who might not otherwise qualify for a mortgage. Here are a few highlights :
- Down payments start at 3%.
- Down payment money can come from family, employer assistance programs, secondary financing or "sweat equity."
- Family members who won't live at the home can be included as co-borrowers for single-unit properties.
- Mortgage insurance requirements are reduced and insurance on the loan can be canceled after the loan balance drops below 80% of the home's appraised value.
- Credit fees are capped and are lower than standard fees for loans with an 80% loan-to-value ratio or higher.
- Borrowers may be able to secure a loan even if they don't have a credit score, although alternative requirements may apply.
Who Should Consider a Home Possible Loan?
The best way to know if a Home Possible loan is right for you is to work with a qualified loan officer who can assess your situation and match your needs against the program's requirements. Home Possible offers some generous provisions for would-be homebuyers, but requirements can vary depending on factors like whether you're purchasing a single-family home or condominium; the size of your down payment versus any amount you've been gifted; or your existing levels of income or debt.
Although a Home Possible loan can be a viable mortgage option for many, it's especially appealing if you find yourself in one or more of the following circumstances:
- Your income does not exceed 100% of the average median income (AMI) in your community. Since you may not know the AMI in your neighborhood, use the Freddie Mac Home Possible tool to check your income eligibility.
- Your family can help with down payment money or by acting as a co-borrower. Gift money may change down payment requirements, however, so get the details before you apply.
- You are open to taking a homeownership class. Homeownership education is required for at least one borrower if all borrowers on the loan are first-time homebuyers. Your lender may also provide early delinquency counseling if you have trouble meeting your payment schedule.
- You fit the credit parameters. The minimum credit score for a Home Possible loan is 660; it's 680 for a no-cash-out refinance. If you or one of the borrowers on your loan do not have a credit score, however, a loan officer may be able to qualify you using alternative underwriting guidelines.
Where Can You Get a Home Possible Loan?
Freddie Mac regularly works with community banks and credit unions, so these local financial institutions in your area are a good place to start looking for a lender.
While you're shopping for a lender that handles Home Possible loans, you may want to look for one that also has a loan officer you enjoy working with. A loan officer who is knowledgeable about this program (or willing to take the time to learn) can discuss options and requirements in detail with you and help walk you through the application and approval process. Because Home Possible requirements can be complex—and may require special or even manual underwriting—a loan officer's expertise can really come in handy.
Are You Prepared for the Mortgage Process?
Buying a home is a complicated process. So is applying for a mortgage. If you're getting ready to submit your mortgage application, pull together some basic financial information. Your prior year tax returns and a recent pay stub can help you confirm your monthly income. Firm up arrangements for down payment money and put it in a safe place like your savings account until you're ready to open escrow.
Even if you're early in the home buying process, it's important to check your own credit. Although Home Possible loans have a workaround for applicants who don't have credit scores, having a credit score of 660 or higher will simplify your application process. You can download your credit report and score from all three credit reporting agencies for free at AnnualCreditReport.com, or get your Experian credit report and score for free anytime. By acting early, you'll know whether your credit score might qualify you for this loan and can work to improve your credit if necessary.
An Alternative for "Alternative" Buyers
Financing a home is a major accomplishment. It requires a record of financial responsibility, significant down payment money and confidence in your ability to live up to your mortgage payments. A Freddie Mac Home Possible loan may be a good fit for homebuyers who don't fit run-of-the-mill mortgage options. If you can use a little help qualifying for a mortgage, this might be an alternative to explore.