Home Possible Mortgage Pros and Cons
Home Possible Mortgage Pros
Low Down Payment
The Home Possible Mortgage Program enables you to buy a home with a down payment as low as 3% of the property purchase price. Additionally, the Home Possible program can be combined with a gift, down payment program or closing cost assistance grant to allow you to buy a home with no personal financial contribution. By providing the opportunity to buy a home with little or no down payment, the Home Possible mortgage program makes owning a home more affordable.
Potentially Lower Mortgage Rate
The Home Possible program offers lower mortgage rates for borrowers that meet certain criteria or for properties located in designated areas. The lower interest rates apply to borrowers with incomes that are less than 80% of the area median income (AMI) or if the home is located in a government-designated low income census tract. You can use Freddie Mac's Affordable Income and Property Eligibility Tool to determine if your income or property location make you eligible for the reduced interest rate. Paying a lower mortgage rate saves you money on your monthly mortgage payment as well as on total interest expense over the life of your mortgage. Please note that borrowers with lower credit scores and higher loan-to-value (LTV) ratios who do not qualify for a lower interest rate under the program usually pay a higher rate as compared to other low or no down payment mortgage programs, especially government-backed programs such as the FHA, VA and USDA programs. The Home Possible program is offered by traditional lenders such as banks, mortgage banks, mortgage brokers and credit unions so borrowers should compare proposals from multiple lenders to find the mortgage with the best terms.
Ability to Use Alternate Income Sources to Qualify for Mortgage
The Home Possible program enables applicants to use alternate sources of income to qualify for a mortgage. When you apply for a mortgage typically only the borrower's income is used to qualify for the loan but with the program additional sources of income can be included in your application. With a Home Possible mortgage, rental income is also factored into the qualification decision. For example, if you purchase a home and rent out an extra bedroom, the rental income could help you qualify for a higher loan amount as long as you have received regular rent payments over the past year. Additionally, if you purchase a multi-family property (up to four units), the rental income from the units you do not reside in could improve your ability to qualify for the mortgage. In short, the ability to use alternate income sources with the Home Possible program improves your ability to qualify for a mortgage and potentially enables you to buy more home.
Use a Non-Occupant Co-Borrower to Help You Get Approved
Home Possible also enables you to use a non-occupant co-borrower to help you get approved for the loan. This means that you can include a parent or other relative on your mortgage although they do not live in the home. Depending on their credit score and financial profile, including a co-borrower on your loan application can improve your ability to qualify for the loan or enable you to afford a higher mortgage amount.
No Up-Front Mortgage Insurance and Reduced Monthly PMI Cost
Unlike government-backed low or no down payment mortgage programs such as the FHA, VA and USDA programs, the Home Possible program does not require borrowers to pay an upfront mortgage insurance fee. Removing the up-front mortgage insurance fee eliminates thousands of dollars in closing costs for borrowers, making it more affordable to buy a home. In addition to not requiring an upfront mortgage insurance fee, the ongoing monthly private mortgage insurance (PMI) cost for a Home Possible mortgage may be lower than the monthly PMI fee for a standard loan or the mortgage insurance premium (MIP) for an FHA loan, depending on your credit score and loan-to-value (LTV) ratio. Additionally, monthly PMI for a Home Possible mortgage is removed when your LTV ratio falls below 78% as your property value increases or your mortgage balance decreases whereas borrowers are required to pay monthly FHA mortgage insurance over the entirety of their loan.
Potentially Higher Borrower Income Limit
Depending on where the home you are buying is located, Home Possible program applicants may be subject to income limits. Home Possible income limits, however, may be higher than the limits for other low down payment mortgage programs such as the HomeReady mortgage program. For properties located in designated low income census tracts there is no borrower income limit which means all borrowers are eligible to use the program to buy properties in those areas. Areas are designated as low income census tracts according to Freddie Mac policies. You can use Freddie Mac's Affordable Income and Property Eligibility Tool to determine the borrower income limit for an area based on property location.
Home Possible Mortgage Cons
Stricter Borrower Qualification Requirements
The Home Possible Mortgage Program uses relatively strict borrower qualification requirements as compared to other low or no down payment mortgage programs. For example, the Home Possible program requires a minimum borrower credit score of 660 as compared to 620 for the HomeReady Mortgage Program and 580 for the FHA Mortgage Program. Additionally, the Home Possible program uses a borrower debt-to-income ratio of approximately 43% - 45% which is lower than 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 which may limit what price home you buy using the Home Possible program.
The Home Possible program limits the size of loan you can obtain through the program. The program uses the conforming loan limit, which ranges from $484,350 to $726,525 in the contiguous United States for a single unit property. In Alaska and Hawaii the conforming loan limit is $726,525 for a single unit property. The good news is that Home Possible enables borrowers to use the super conforming loan limits in counties with higher average home prices in comparison to many low down payment programs that apply the general conforming loan limit to all borrowers, regardless of the housing costs in your area. People who live in more expensive areas of the country may find that the Home Possible loan limits reduce their housing options. The loan limits are less of a factor for home buyers interested in less expensive homes.
More FREEandCLEAR Resources
Review our informative overview of the Home Possible Mortgage Program including program eligibility, borrower qualification requirements, loan limits and other important program information.
Home Possible mortgages are provided by traditional lenders such as banks, mortgage brokers, mortgage banks and credit unions. Use our mortgage rate tables to contact lenders in your area to determine if they offer the Home Possible Mortgage Program and to view updated mortgage rates and closing costs. Comparing proposals from multiple lenders is the best way to save money on your mortgage.
Review and compare multiple conventional and government-backed no or low down payment mortgage programs to understand key program benefits and eligibility requirements.
Home Possible Mortgage: http://www.freddiemac.com/homepossible/