Believe it or not, most first time buyers think a large down payment is necessary to buy a home. This is far from true. We offer several options that provide low to no down payment home loans. One low down payment option is the Freddie Mac Home Possible mortgage. Maybe you have heard of another low down payment loan called HomeReady. HomeReady is offered by Freddie Mac’s sister agency Fannie Mae. Freddie and Fannie exist to provide mortgage lenders the ability to offer affordable financing for buyers and homeowners. Both of these affordable lending products are great options to compete with FHA and for certain cases, have advantages over FHA.
Most have heard that home prices, as well as rates, have been going up lately. In many areas, rising home prices especially make homeownership difficult for first-time buyers to achieve, but Home Possible helps first timers break through this barrier with affordability and flexible guidelines.
Let’s see if Home Possible is right for you.
Home Possible Mortgage Down Payment
Rather than 20%, 10%, or even 5% down, buyers are able to put down 3%. Possibly even lower than 3% with additional financing called “affordable seconds.” With a down payment of only 3% creating such a low barrier to entry, there are so many ways to get the money. Several common ways to come up with the down payment include:
- Tax refund – Learn how to best use a tax refund to buy
- Borrow against an asset
- Selling an asset like a car, four wheeler, boat
- Borrow against a retirement account
- Gift from family or employer
- Payroll bonus or commission
- Traditional savings
It is even possible for the down payment to come from what are called “affordable seconds.” These are 2nd mortgages that may or may not have payments. There are usually a limited amount of these sources, and each has particular borrower and property requirements. Additionally, an affordable second must meet Freddie Mac’s special requirements as well. In some cases, we may be able to match you to a down payment source.
With some creativity or budgeting, there are many ways that a buyer can save up the funds for this low down payment. A REALTOR® may even use their commission on the purchase of their own home as down payment! An important thing to remember is that home loans require documentation of the down payment source. So, cash is not allowed. Also, if using a source like above, contact your OVM Financial loan officer to make sure it is documented correctly. It is better to make sure documentation is handled correctly up-front because it is tough to go back and fix it.
Home Possible Guidelines
The two words that best describe this program are flexible and affordable. The underwriting guidelines provide opportunities for many buyers to qualify that may not qualify for other products. A few of our guidelines include:
- Only 640 minimum credit score
- $100,000 minimum loan size
- Single-family homes, townhomes, off frame modular, and approved condos
- Manufactured homes are not eligible
- Fixed rate terms for 30 years
- Primary residence only
- Lower than traditional mortgage insurance
- Maximum income limits in some areas
Home Possible Mortgage Insurance
Lower mortgage insurance may not seem like a big deal, but it is. This is the area which lowers the mortgage payment compared to FHA or other conventional loan products. Not only is the mortgage insurance lower, but it may also be canceled once the loan balance drops below 80% of the appraised value. So, after living in the home long enough, the homeowner may have a drop in housing payment for the rest of the loan term. There are certain rules for canceling PMI or mortgage insurance. Check out a popular article, “When does PMI stop on FHA, USDA, and conventional loans?”
Home Possible Income Limits
Like other affordable mortgage loan types, Home Possible has a maximum income limit. Unlike USDA or some down payment assistance products, this mortgage does not go by household income. Rather, the borrower’s annual income must be equal to or less than the area median income for the census tract where the property is located. UNLESS! If the property is in a “designated underserved area,” then there is no income limit! Furthermore, if the property is in a “designated high-cost area,” the area median income maximum is higher. These features help a lot of buyers that make over the income limit but still need an affordable loan.
Sample Areas That Have Home Possible No Income Limits
Part or all of Shallotte NC, Wilmington NC, Sanford NC, Fayetteville NC, Southern Pines NC, Charlotte NC, Jacksonville NC, Chesapeake VA, Norfolk VA, Myrtle Beach SC, Charleston SC, San Antonio TX, Dallas TX. Most towns and cities have at least a portion that qualifies for no income limits.
Your loan officer will compare loan options for you and part of that includes explaining the PMI, down payment, and qualifications on various loan products. Each buyer’s qualification and goals are different, so speak to an OVM Financial loan officer now to learn which works for you.