Freddie Mac Home Possible and Home Possible Advantage loans

Freddie Mac’s Home Possible and Home Possible Advantage loans — collectively referred to as Home Possible mortgages — are geared toward borrowers who:

  • Have limited cash for a down payment
  • Have low to moderate income
  • Have a credit score of 660 or higher

However, Home Possible loans are also a good option for borrowers who don’t have a credit score because they have no credit history. In that case, the lender will look for “Noncredit Payment References” such as 12 months of rental payments or other monthly payments that don’t appear on the borrower’s credit report.

Home Possible mortgages are available with down payments as low as 3.0%, but borrowers with less than 20% down are required to pay mortgage insurance. Home Possible mortgage insurance premiums are risk-based, so the higher a borrower’s credit score, the lower their mortgage insurance premium. With a 3% down payment and a credit score of over 740, the annual premium would be 1% of the loan amount. Borrowers can also have their mortgage insurance canceled once the loan balance drops to at least 80% of the home’s value.

Like the HomeReady program, Home Possible mortgages come with income limitations. The borrower’s annual income must be less than or equal to the AMI for their census location unless the area is designated as an “Underserved Area” or “High Cost” area. In an Underserved Area, AMI requirements do not apply. In a high-cost area, the borrower’s income can exceed the AMI by a certain percentage. 

Home Possible mortgages require that the borrower make a minimum 3% contribution toward their down payment and closing costs, but that 3% can come from their own funds, a gift, a grant or the Affordable Second program. That 3% cannot come from the seller or any person or company affiliated with the seller.

Buyers are required to complete a borrower education course if all borrowers on the loan are first-time buyers, or if the lender had to rely on Noncredit Payment References because the borrowers don’t have a credit score. They can meet the education requirement by taking a course from a HUD-approved credit counseling agency, housing finance agency (HFA), community development financial institution. 

 

HomeReady Mortgage from Fannie Mae

HomeReady loans from Fannie Mae are geared toward borrowers who:

  • Have a credit score of 620 or higher
  • Have limited cash for a down payment
  • Have low to moderate income
  • Have supplemental boarder income or rental income

HomeReady mortgages are available with down payments as low as 3.0%, but any borrower putting down less than 20% is required to pay mortgage insurance. The mortgage insurance premium depends on the borrower’s credit score and LTV. With a 3% down payment and a credit score of over 740, the premium would be 1.000% of the loan amount. However, unlike FHA loans, HomeReady borrowers can have their mortgage insurance canceled once their home equity reaches 20%.

However, HomeReady mortgages are limited to borrowers who meet certain income limits. In some areas, that limit is 100% of the area median income (AMI). In low-income neighborhoods, there are no income limits. 

Buyers who might have trouble qualifying on their income alone may benefit from the flexibility HomeReady mortgages offer. Borrowers may be able to add rental income from an accessory unit or a tenant to their qualifying income on a loan application.

Eligible HomeReady borrowers also have a few options when it comes to funding their down payment and closing costs. On single-unit properties, there is no requirement that the borrower contributes a certain percentage of their own funds. So the borrower can use gifts, grants or Community Seconds loans to cover their down payment and closing costs.

However, Fannie Mae limits seller help toward closing costs to 3% of the sales price. “For most sales prices, that does not cover all the closing costs,” Milauskas said.

Fannie Mae also requires the borrower to complete its Framework online education program. The program is designed to educate borrowers on navigating the loan process and successfully managing their mortgage. The fee for the course is $75.

 


Connect with a Loan Officer

Loan Officer Thomas Johnston

Loan Officer Thomas Johnston | NMLS# 1583463; Arizona, California, Oregon, Texas and Washington

Thomas is your mortgage loan originator, who works side by side with a strong team that shares the same devotion to excellence.
Experienced, knowledgeable, and always up to date on the industry's latest products, Thomas strives to exceed the customers' expectations in each and every transaction.

Do you have any questions? Please call 866-610-6025


 

FHA loans

FHA loans are backed by the Federal Housing Administration (FHA). Because the federal government guarantees these loans, lenders make them available to borrowers whose credit scores or debt-to-income ratio might otherwise render them ineligible for a mortgage.

Borrowers with a credit score of 580 or higher can get an FHA loan with a down payment as low as 3.5%. For those with credit scores between 500 and 579, the minimum down payment is 10%.

All FHA loans require borrowers to pay both upfront and annual mortgage insurance. The upfront mortgage insurance premium is 1.75% of the base loan amount. The annual mortgage insurance premium depends on the loan amount, term and loan-to-value ratio (LTV). For example, a 30-year mortgage with a base loan amount of less than $625,500 would have an annual mortgage insurance premium of 0.85% of the base loan amount, while a loan of the same amount but an LTV greater than 90% and less than or equal to 95% would have an annual insurance premium of 0.80%.

FHA loans are not limited to low-income borrowers — anyone can take advantage of the program. There are, however, limits to the amount the FHA will insure, which vary depending on location. For 2018, the maximum in designated high-cost areas is $679,650. 

Timothy Milauskas, a loan officer at First Home Mortgage in Baltimore, said FHA loans are ideal for borrowers who don’t have a lot of extra cash to put toward closing costs because they allow the seller to pay up to 6% of the home’s sales price toward closing costs. “In most areas of the country and most sales prices, that will take care of all the closing costs,” Milauskas said. Of course, the seller must agree to that.

 

In Conclusion

Milauskas said the decision between FHA, HomeReady and Home Possible mortgages “usually comes down to two things: credit score, and money available for down payment and closing costs.”

The HomeReady and Home Possible loan programs have higher minimum credit score requirements than FHA loans. But with lower minimum mortgage insurance premiums that can be removed once you reach 80% equity in your home, you can save a significant amount of money over the course of a 15- or 30-year mortgage.


Connect with a Loan Officer

Loan Officer Thomas Johnston

Loan Officer Thomas Johnston | NMLS# 1583463; Arizona, California, Oregon, Texas and Washington

Thomas is your mortgage loan originator, who works side by side with a strong team that shares the same devotion to excellence.
Experienced, knowledgeable, and always up to date on the industry's latest products, Thomas strives to exceed the customers' expectations in each and every transaction.

Do you have any questions? Please call 866-610-6025

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