If you are a low to moderate-income family, you may be eligible for the Freddie Mac Home Possible Mortgage. It’s the perfect program for first-time homebuyers; however, previous homeowners can apply as well.
Keep reading to learn about Freddie Mac’s Home Possible requirements.
Down Payment Requirements
Borrowers must put down at least 5% when using the Home Possible program. The good news, however, is that the money does not have to be your own. You can use funds from family, friends, or an employer. You can also use funds from a secondary source, if applicable.
If you do use gift funds, you will need a gift letter from the donor. You will also need to prove to the lender that the money is not a loan. If you do use your own funds, they must be seasoned, which means they must be in your account for at least 2 months.
The Income Requirements
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. If your gross monthly income is less than the average income for the area, you may qualify.
Freddie Mac does have two exceptions to this rule:
If you live in a high-cost area, you can make as much as 140% of the average income for the area and still qualify
If you live in an underserved area, there are not any income limits you must follow
Minimum Credit Score Requirements
The minimum credit score under the Home Possible program varies by lender, just like any other conventional loan. Typically, lenders require at least a 660 credit score for a fixed rate mortgage. They may require a slightly higher score for adjustable-rate mortgages, though. Again, this will vary by lender. You may find some lenders that allow lower scores and those that require higher scores. It often depends on the other qualifying factors that you present.
f you have compensating factors or factors that make up for a lower credit score, you may have a better chance of gaining approval. Compensating factors include liquid assets on hands for reserves, a low debt ratio, and stable income.
Maximum Debt Ratio Guidelines
The maximum debt ratio allowed on the program is also up to lender discretion. In general, a 43% debt ratio is the maximum allowed. 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.
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.
The Eligible Properties
Generally, you can buy any 1 to 4-unit property with the Home Possible program. If you buy a condo or townhome, though, you will have to make sure the development is Freddie Mac approved. It must be a ‘warrantable condo’ in order for Freddie Mac to allow it. This helps the lender know that the development is in good condition, doesn’t have large investors owning multiple properties, and that the association is not under any litigation.
Keep in mind that the home must be your primary residence. You cannot use this program for an investment property or second home. You also cannot use the program to buy a manufactured home.
The Freddie Mac Home Possible program makes it easier for low to moderate-income families to buy a home. With just 5% down on the home, you may qualify for the loan with a debt ratio as high as 43%. As long as you have stable qualifying factors and can prove that you can afford the loan, you could be well on your way to home ownership.Click to See the Latest Mortgage Rates»