Freddie Mac’s 3% down mortgage

Today’s home buyers face plenty of obstacles. You might be worried about buying a house with low income or saving for a down payment. Maybe your credit score isn’t perfect.

If you’re dealing with any of these roadblocks, a Freddie Mac Home Possible loan could be the perfect solution.

The Home Possible mortgage program requires as little as 3% down and has looser lending requirements than some other loan types. So it can be ideal for many first-time buyers who need an extra boost.

In this article (Skip to…)

• What is Home Possible?
• About Home Possible
• Eligibility
• Income limits
• Interest rates
• Alternative options
• Home Possible FAQ

“Freddie Mac Home Possible offers more options to fit a variety of borrower situations” explains Jared Maxwell, vice president of Consumer-Direct Lending for Embrace Home Loans.

“This program is intended to help people whose income is 80% or less of the area median income by providing low down payment options and flexible sources of down payment funds,” Maxwell says.

With Home Possible, you don’t have to cover the 3% down payment out of pocket.

Funds could come from a down payment assistance program or even a gift from a family member.

Note that although Freddie Mac backs this loan program, Freddie is not a lender.

Home Possible loans are originated through private lenders, so borrowers have the ability to shop around for their mortgage lender and compare interest rates.

“Home Possible is available to anyone who makes less than 80% of the average monthly income for the ZIP code they will be buying in,” Ralph DiBugnara, founder of Home Qualified, says.

“Additionally, the property needs to be owner-occupied by at least one of the applicants on the loan, and a minimum FICO credit score of 660 is required for all loan applicants. The program is also only available for single-family residences,” DiBugnara explains.

Other requirements for Home Possible loans include:

• A debt-to-income (DTI) ratio of 43% or less if the loan is approved through Freddie Mac’s automated uderwriting system. Or, a DTI of 45% or less if the loan is manually underwritten
• A loan-to-value (LTV) ratio of 97% or less (meaning you put at least 3% down). If you have multiple home loans or a second mortgage — used to cover the down payment, perhaps — the LTV max is 105%

“While first-time home buyers can access this program, individuals who have owned a home in the past or who have an interest in an additional financed residential property can qualify as long as their income is 80% of the area median income and at least one borrower resides in the home as their primary residence,” notes Maxwell.  

He explains, “The loan officer will run the application through Freddie Mac’s automated underwriting system to confirm the loan meets the qualification requirements, or will submit the application as a manual underwriter if the lender allows for it.”

Another perk? You can also qualify with a co-signer on the loan.

“Non-occupant co-clients are allowed in this program, which means you can qualify with the income of a parent or other individual who agrees to co-sign the loan with you,” says Imani Francies, a mortgage expert with Loans.org.

Note that at least one borrower must participate in a homeownership education program if all occupying borrowers will be first-time buyers, or if all borrowers’ credit history is determined using nontraditional payment records.

Check your Hoem Possible eligibility (Sep 8th, 2021)

To better determine if you qualify, use the Home Possible income and property eligibility tool.

Home Possible mortgage interest rates are competitive with other low-down-payment conventional loans. That means borrowers can access today’s low mortgage rates via the Home Possible program.

Of course, the interest rate you qualify for will depend on many factors, including your lender, loan term, and credit score.

Be aware that you will also be required to pay private mortgage insurance (PMI) on a Home Possible loan. This will increase your monthly mortgage payments.

The good news is that mortgage insurance on 1-unit properties can be canceled after your loan balance drops below 80% of the home’s appraised value and cancellation criteria are met. Also, mortgage insurance coverage requirements are lowered for LTV ratios above 90% (meaning you put down 10% or more).

• FHA loan — Requirements: 3.5% down, 580 FICO credit score minimum, 43% DTI ratio maximum
• Conventional 97 loan — (offered by Fannie Mae/Freddie Mac). Requirements: 3% down, 620-660 FICO credit score minimum, 50% DTI maximum, 97% LTV ratio maximum
• Fannie Mae Home Ready loan — Requirements: 3% down, 620-680 FICO credit score minimum, 50% DTI maximum, 97% LTV maximum, annual income can’t exceed 100% of median income for that area
• VA Home Loan — Requirements: 0% down, 580-660 FICO credit score minimum, 41% DTI maximum, must be a veteran, active-duty service member, or spouse of a veteran
• USDA loan — Requirements: 640 FICO credit score minimum, 41% DTI maximum, annual income can’t exceed 115% of the area median income, must buy in eligible rural areas.

“An FHA loan would probably be your next best option if you don’t qualify for or pursue a Home Possible loan,” says Francies.

“The former is guaranteed by the [Federal Housing Administration] and available to low- to moderate-income borrowers, and it has a lower minimum down payment and credit score requirement than many conventional loans.”

The HomeReady loan is another good option backed by Fannie Mae.

In many ways, HomeReady is similar to Home Possible. But as an added bonus, you can use income from non-borrower household members to help you qualify. For instance, if you have a parent or roommate living with you — but not applying for the mortgage — their income could still help you qualify for the loan.

Verify your new rate (Sep 8th, 2021)