Freddie Mac Home Possible Program

Yes, manual underwriting is permitted for Home Possible mortgages, though it comes with stricter eligibility standards compared to loans assessed by Loan Product Advisor (LPA). For manually underwritten loans, the borrower must demonstrate an acceptable credit reputation, and specific minimum credit scores apply (e.g., 660 for a 1-unit fixed-rate purchase). Additionally, the debt-to-income (DTI) ratio for manually underwritten Home Possible loans must not exceed 45%. If a borrower lacks a usable credit score, the loan may still be eligible under specific strict conditions, including a maximum 95% LTV ratio and a clean credit history for the most recent 24 months.

Homeownership education is mandatory for purchase transactions if all occupying borrowers are First-Time Homebuyers. In such cases, at least one occupying borrower must complete an acceptable homeownership education program before the Note Date. Acceptable programs include Freddie Mac’s CreditSmart® Homebuyer U, courses from HUD-approved agencies, or programs meeting National Industry Standards. Furthermore, for purchase transactions involving 2- to 4-unit primary residences, at least one qualifying borrower must participate in a landlord education program to ensure they are adequately prepared for the financial and legal responsibilities of managing rental units.

Yes, non-occupying borrowers are permitted, which can assist qualifying borrowers in meeting income or credit requirements. This is allowed provided the mortgage is secured by a 1-unit property and the Loan-to-Value (LTV) ratio does not exceed 95% for loans receiving an Accept risk class in Loan Product Advisor (or 90% for manually underwritten loans). While the non-occupying borrower is not required to live in the home, at least one borrower must occupy the property as their primary residence. The income of the non-occupying borrower is included in the total qualifying income, which must still adhere to the 80% AMI limit.

Home Possible mortgages offer the benefit of reduced mortgage insurance (MI) coverage requirements, which lowers the borrower’s monthly payment. For standard conventional loans with an LTV greater than 95%, coverage is typically 35%. However, for Home Possible loans with an LTV greater than 90% (up to 97%), the required standard coverage is reduced to 25%. For LTVs between 85.01% and 90%, coverage is 25%, and for LTVs between 80.01% and 85%, it is 12%. Lenders may also utilize custom MI options with different coverage percentages, though these may involve specific credit fee adjustments.

While the program does not strictly require borrowers to be first-time homebuyers, there are limitations on property ownership to ensure the program serves its intended demographic. The occupying borrower(s) must not possess an ownership interest in more than two financed residential properties, including the subject property, as of the Note Date. This limitation prevents real estate investors from utilizing the program to build large portfolios. It is important to note that this restriction applies to the occupying borrower; non-occupying co-borrowers are generally not subject to this specific limitation regarding the number of financed properties they may own.

For 1-unit properties, there is no minimum contribution required from the borrower’s personal funds. This flexibility means the entire down payment can be sourced from eligible gift funds, grants, or Affordable Seconds. However, for 2- to 4-unit properties, if the Loan-to-Value (LTV) ratio exceeds 80%, the borrower must contribute at least 3% of the value from their own personal funds. Acceptable sources for funds include borrower personal funds, gifts from related persons or agencies, and sweat equity, provided specific documentation and eligibility requirements regarding the source and transfer of funds are strictly followed.

The Home Possible program allows for high Loan-to-Value (LTV) ratios to reduce the cash required at closing. For 1-unit properties, borrowers can obtain a fixed-rate mortgage with an LTV ratio up to 97%, effectively requiring a down payment of only 3%. For 2- to 4-unit properties, the maximum LTV is generally 95% for fixed-rate loans. If the borrower utilizes secondary financing, such as an “Affordable Second,” the Total LTV (TLTV) can reach up to 105% for 1-unit properties. Manufactured homes are subject to stricter limits, typically capped at a 95% LTV ratio.

The program accepts a variety of property types, primarily focusing on 1- to 4-unit primary residences. Eligible properties include attached or detached dwellings, Condominium Units, and Planned Unit Development (PUD) units. Manufactured Homes are also eligible, provided they meet specific requirements outlined in the selling guide, though they are generally capped at a 95% Loan-to-Value (LTV) ratio. Cooperative units may be eligible if permitted under the seller’s purchase documents. Regardless of the property structure, the borrower must occupy the property as their primary residence; investment properties are generally ineligible unless the borrower occupies one of the units.

To qualify for a Home Possible mortgage, the borrower’s annualized qualifying income must not exceed 80% of the Area Median Income (AMI) for the location of the mortgaged premises. Lenders are required to use the specific income used to qualify the borrower when determining compliance with this limit. For loans processed through Loan Product Advisor (LPA), the system automatically determines income eligibility. For manually underwritten loans or those not processed through LPA, lenders must utilize the Home Possible Income & Property Eligibility tool to verify that the borrower meets the strict income thresholds relative to the specific geography.

The Home Possible program is an affordable lending initiative designed to assist very low- to low-income borrowers in attaining homeownership. It offers flexible underwriting criteria and low down payment options, allowing for Loan-to-Value (LTV) ratios up to 97% for eligible 1-unit properties. The program accommodates both purchase transactions and “no cash-out” refinance transactions. It supports various mortgage products, including fixed-rate mortgages and specific Adjustable Rate Mortgages (ARMs), such as 7/6 and 10/6 ARMs. A key eligibility constraint is that the borrower’s qualifying income generally must not exceed 80% of the Area Median Income (AMI) for the property’s location.