What is a Home Possible Mortgage?
Home Possible is a conventional loan program created by Freddie Mac. It is a more affordable option due to its smaller 3% to 5% down payment requirement.
Home Possible mortgages are designed for low to moderate income home buyers as well as first-time home buyers and younger borrowers. This program can help you go from just renting a house to owning your own home.
What are the Requirements?
Home Possible mortgages help first-time home buyers. It does not restrict buyers who are looking to upgrade however, you cannot own any other residential property to approve for a Home Possible program. If you own a property, you would need to sell your current home before taking on a Home Possible mortgage. It is possible, however, to close on both the home you are selling and the home you are buying on the same day.
A Home Possible program can be used for purchases or refinances. No cash-outs are allowed though in the case of a refinance. As in the case when switching from a 30-year mortgage to a 15-year one, refinances can only be used to change your interest rate or term.
Before closing the loan, any borrower who will be on the mortgage note, and are first-time home buyers, must take a homeownership course call CreditSmart prior to closing the loan. A first-time home buyer is a person who has not owned any kind of residential property within the last 3 years. It is a free program that can be either taken online or in person. After completing the program, which only takes a couple of hours, you can print out a certificate.
What are the Income Limits for Home Possible?
Income limits to apply to this program because the Home Possible mortgage is designed for low to moderate-income borrowers. To qualify for the program, your income cannot exceed the Area Median Income (AMI) where the property is located.
There are a few exceptions to the income limit. For instance, in high-cost areas, such as near big cities. Higher incomes are allowed in more expensive areas.
Another exception is that there is no borrower limit in rural or underserved areas. To determine what your local income limits and property eligibility are, use Freddie Mac’s income and property eligibility tool.
All borrower income must be documented given the income limits stipulated. The guidelines also require a stable monthly income, or a 2-year income history, for all of the borrowers who sign the mortgage note.
Down Payment Options for Home Possible
Most mortgage programs require that some part of down payment come from the borrower. But with Home Possible loans, funds can come from a variety of sources so that you can make your 3% to 5% down payment requirement. Some of these sources include:
- Money from family and/or friends
- Affordable seconds programs
- Employee assistance programs
If friends or family help you with the funds for your down payment, it needs to actually be a gift. It cannot be a temporary loan that you are expected to pay back. Therefore, both you and your donor will need to sign a mortgage gift letter. This is a legal document stating that the funds are truly a gift.
You will also want to make sure that you are using seasoned funds if you take money from your savings, checking or IRA accounts. Seasoned funds is money that has been in one of those accounts for a period of at least 60 days.
Finally, make sure that whether you are using gifted funds or those from your account, the money is traceable. This means that you won’t be using money you been keeping in a envelope in your drawer. Rather, the funds need to have a traceable history from the source.
Additional Home Possible Guidelines
Any borrower who signs the mortgage must be an occupant of the home. It also must be their primary residence, not an investment property or second home.
There are credit score requirements as well. The minimum FICO score required for Home Possible loans will vary by lender. Conventional loans generally require a score of 680 or higher. However, the minimum credit score with a Home Possible loan is typically 620.
