How the Your Path Mortgage Program Works
- Important Your Path Mortgage Program Considerations
- More flexible borrower qualification and reduced documentation requirements
- Permits the use of alternate income sources to qualify for mortgage
- Ability to purchase a home with a 3% down payment and no borrower contributiont
- Potentially lower mortgage rate as compared to other conventional low down payment programs (depending on borrower income and property location)
- Higher borrower income limit
- Both first-time and repeat home buyers are eligible
- No up-front private mortgage insurance (PMI) and potentially lower ongoing PMI cost as compared to mortgage insurance for an FHA loan
- Twelve month pilot program
- Program is only available through two lenders
- Higher mortgage rate than government-backed low down payment programs mortgage programs (FHA, VA and USDA)
- Limit on mortgage amount
- Requires private mortgage insurance (PMI)
- Your Path Program Overview
- The ability to include borrower income from a second job with only twelve months of work history instead of two years of history
- More options for self-employed borrowers to demonstrate their income
- Enhanced flexibility to include income from seasonal employment
- Reduced bank documentation required to demonstrate proof of a down payment
- How the Your Path Mortgage Program Works
- Review information on down payment grants and other home buyer assistance programs by clicking STATE PROGRAMS
- Your Path Mortgage Qualification Requirements
- Borrower Costs and Fees
- Mortgage Type and Amount
- Property Eligibility and Location
The Your Path Mortgage Program is designed to help individuals with low-to-moderate incomes or alternate sources of income qualify for mortgages. The program is offered through a collaboration between Freddie Mac, Alterra Home Loans and New American Funding. Freddie Mac is a government-sponsored enterprise that provides capital to lenders and works with lenders to develop mortgage programs for borrowers. Alterra Home Loans and New American Funding are lenders that focus on underserved borrowers, particularly minority populations.
The Your Path Program is based on Freddie Mac’s low down payment Home Possible Mortgage Program. Like the Home Possible Program, the Your Path Program requires a down payment of only 3% and no personal financial contribution from the borrower to buy a home. Additionally, as outlined below, the two programs have many of the same borrower qualification requirements and program eligibility guidelines.
Both programs also allow applicants to include income from non-borrower household members such as relatives or boarders to qualify for the mortgage or improve the borrower’s debt-to-income ratio, which may allow you to get approved for a larger mortgage. For example if you purchase a single family property and relatives or boarders intend to live with you in the property for at least twelve months then you can use the income from the individuals to qualify for the mortgage, even though they are not co-borrowers and do not own the home. Additionally, if you purchase a multi-family property (up to four units), the rental income from the units you do not occupy could help you qualify for the mortgage.
Although there is significant overlap between the two program, the Your Path Mortgage Program offers several unique and innovative features intended to make it easier for borrowers to qualify for a mortgage. Key differentiators of the Your Path Mortgage Program include:
These features, along with permitting non-borrower household income to be used to qualify for a mortgage, are designed to address the growth in multi-generational households as well as the increasing number of borrowers with non-traditional sources of income. By applying more flexible borrower qualification requirements, the Your Path Mortgage Program makes home ownership accessible to more people.
The Your Path Program competes with conventional low / no down payment programs such as the HomeReady Mortgage Program, Bank of America Affordable Loan Solution Program and Wells Fargo yourFirst Mortgage Program as well as government-backed programs such as the FHA, VA and USDA programs. Be sure to compare and understand multiple low / no down payment mortgage programs to find the one that best meets your needs.
Borrowers apply for and obtain a Your Path Mortgage from Alterra Home Loans or New American Funding. Borrowers that qualify for the program are required to make a down payment of 3% of the property purchase price and decide if they want to make the down payment using their own funds or other sources. Borrowers that do not have sufficient personal funds for the down payment can combine the Your Path Program with a personal gift or down payment assistance grant to pay for all or part of the down payment and closing costs.
Using a down payment grant or gift enables the home buyer to purchase the property with no personal financial contribution. For example, if a home buyer wants to purchase a $200,000 home, he or she could obtain a $194,000 Your Path Mortgage from one of the two participating lenders and a $5,000 down payment grant to buy the home with no personal financial contribution.
Down payment assistance programs are typically offered by state and local housing agencies and commissions. Housing agencies and commissions are usually non-for-profit organizations that offer a range of home buyer assistance programs. Additionally, some companies also offer down payment assistance grants for employees.
Home buyers that want to use the Your Path Mortgage Program with a down payment assistance program should apply for the mortgage with Alterra Home Loans or New American Funding and also contact their local housing commission (or employer) to apply for the down payment grant. In some cases, Alterra or New American may recommend specific housing organizations for borrowers to work with and the housing organization may provide resources in addition to the down payment assistance program to help guide borrowers through the home buying process. If you are interested in the Your Path Program your first step is to contact Alterra Home Loans or New American Funding by calling, visiting their web sites or going to a local branch.
Please note that the Your Path Program is only available in states where Alterra and New American are licensed to conduct business. Alterra is licensed in Arizona, California, Colorado, Florida, Georgia, Illinois, Nevada, New Jersey, Oregon, Texas and Washington. New American Funding is licensed in every state except Hawaii and New York.
Use the FREEANDCLEAR LENDER DIRECTORY to find lenders in your state that offer low down payment mortgage programs
We review the key Your Path Program borrower qualification requirements below. Because the Your Path Program is based on the Home Possible Program, many of the program guidelines are the same.
The minimum credit score required to qualify for the Your Path program is 660 for the purchase of single-family residences with a fixed rate mortgage. The minimum credit score required for an adjustable rate mortgage (ARM) or refinancing is 680. The minimum credit score required for a multi-family property is 700.
Borrower Debt-to-Income Ratio
The Your Path program is relatively flexible on the debt-to-income ratio applied to determine what size mortgage a borrower can afford. In short, a debt-to-income ratio represents the ratio of how much you spend on monthly debt payments such as your mortgage, car loan and credit card bills to your monthly gross income. The higher the debt-to-income ratio used by the lender, the larger the mortgage you can afford. According to Your Path Mortgage Program guidelines, a lender may use a higher debt-to-income ratio for a borrower with stronger financial, credit and employment profiles. Additionally, lenders can factor in non-borrower household income from a relative or boarder to improve an applicant’s debt-to-income ratio, which may enable you to qualify for a larger mortgage.
Although the program uses no strict figure, lenders typically use a debt-to-income ratio of 43% - 45%. The debt-to-income ratio limit used by the Your Path Mortgage Program is lower than for standard mortgage programs as well as the HomeReady and FHA mortgage programs which permit a borrower debt-to-income ratio of 50% or higher under certain circumstances. A lower debt-to-income ratio reduces what size mortgage you qualify for with the Your Path program. For example, if you earn $5,000 per month in gross income and the lender applies a debt-to-income ratio of 43%, you can spend $2,150 on monthly debt payments including your mortgage ($5,000 * 43% = $2,150).
Borrower Income Limits
Your Path borrowers may be subject to income limits depending on the location of the property they are financing. Unless the borrower is purchasing a property located in a designated Underserved Area or High Cost Area, a borrower’s annual gross income must be equal to or less than the area median income (AMI). Income limits do not apply to borrowers that purchase a property in an Underserved Area. For properties located in a High Cost Area, the borrower's income can exceed the AMI by a designated percentage, up to 170%. For example, if a High Cost Area has an area median income of $75,000, the borrower income limit for the area could be up to $127,500 (170% of $75,000 = $127,500).
Areas are designated as Underserved or High Cost according to Freddie Mac and government guidelines. Freddie Mac’s Affordable Income and Property Eligibility Tool enables you to determine the AMI and borrower income limit for an area based on property location.
Home Buyer Counseling Class
First-time home buyers are required to take a Freddie Mac-approved counseling class to understand the responsibilities and obligations associated with owning a home.
First-Time and Repeat Home Buyers
The Your Path Mortgage program is available to both first-time and repeat home buyers but the borrower that owns and occupies the property cannot own any other homes.
Borrower Financial Reserves
The Your Path Program does not require borrowers to hold savings in reserve at mortgage closing for the purchase of single family properties, although FREEandCLEAR recommends that you hold enough savings in reserve to cover three-to-six months of total monthly housing expense (mortgage payment plus property tax, homeowners insurance, private mortgage insurance (PMI) and other applicable housing expenses). So if your monthly housing expense is $1,000, we recommend that you hold at least $3,000 in reserves at the time your mortgage closes.
If your income is less than 80% of the area median income (AMI) or if the property you are financing is located in an Underserved Area, you may qualify for a lower mortgage rate. In this case your mortgage rate may be lower than other conventional no and low down payment programs but higher than the interest rate for government-backed programs such as the FHA, VA and USDA mortgage programs. If you do not qualify for the lower mortgage rate, borrowers with lower credit scores and higher loan-to-vale (LTV) ratios pay higher interest rates.
Private Mortgage Insurance (PMI)
If your LTV ratio is above 80%, the Your Path Mortgage Program requires that borrowers purchase private mortgage insurance (PMI), which is an ongoing monthly cost in addition to your monthly mortgage payment. In short, PMI protects the lender in the event that the borrower defaults on the mortgage. The amount of PMI the borrower is required to pay depends on the LTV, credit score and other factors. In some cases, the required monthly PMI fee is lower than the monthly mortgage insurance premium for an FHA mortgage. Additionally, the Your Path Program does not require borrowers to pay an up-front PMI fee like they do for an FHA, VA or USDA mortgage and the monthly PMI fee is removed when your LTV ratio falls below 78%.
Aside from a small fee to pay for the home buyer counseling class, if applicable, borrowers are not required to pay additional fees to apply for the program. Borrowers using a closing cost grant may be required to pay a separate fee to the housing agency or commission to apply for that program.
The program applies to thirty year fixed rate mortgages. Under certain circumstances, borrowers may also be able to use 5/1, 7/1 and 10/1 adjustable rate mortgages (ARMs). Interest only mortgages are not eligible for the Your Path program.
The program only applies to conforming loan amounts ($453,100 or below for a single unit property in most counties) which limits the size of mortgage you can obtain.
The Your Path Mortgage Program applies to both home purchase mortgages and refinancings, although cash-out refinancings are not permitted.
The program requires home buyers to pay property taxes, homeowners insurance and PMI, along with their mortgage payment, into an impound account on a monthly basis. An impound account is a trust account controlled by the lender from which expenses such as taxes and insurance are paid when due. The impound account does not affect the amount of fees the borrower is required to pay for the mortgage.
The Your Path Program applies to owner-occupied, principal residences such as homes, condominiums or co-ops. Multi-family, one-to-four unit properties are allowed as long as the applicant resides in one of the units. The 3% down payment option only applies to single-family residences and applicants looking to buy multi-family properties may be required to make a higher down payment.
The property must be located in a state in which Alterra Home Loans and New American Funding are licensed to issue mortgages. Alterra is licensed in eleven states and New American Funding is licensed in every state except Hawaii and New York.