What is the Home Possible Loan Program and How You Can Use it to Buy a Home in Florida?
If you’re a first-time homebuyer with limited savings, the Home Possible program might be the most beneficial for you. Freddie Mac’s Home Possible and Home Possible Advantage mortgages are conventional loan programs. They are designed for low-to-moderate income borrowers and first-time homebuyers. They are for people with limited savings and low funds for a down payment. It offers outstanding flexibility to fit a variety of borrower situations.
The Home Possible program has attractive features such as low down payments, fixed-rates, reduced mortgage insurance coverage levels, flexible funding options for closing fees, and no cash-out refinancing. It allows lenders to reach working families who are ready to own a home.
Six Key Features of a Home Possible Mortgage:
FLEXIBLE SOURCES OF DOWN PAYMENTS
Your down payment can come from a variety of sources, including family, secondary financing, employer-assistance programs, sweat equity, etc.
Qualifying income is capped at 80% of Area Median Income (AMI). Geographic limits on loan amounts do not exist. A mortgage specialist can tell you exactly if you meet the income limit requirements.
MAXIMUM LTV RATIOS
Low down payment requirement with a maximum of 97% LTV.
Once your loan balance drops below 80% of the home’s appraised value, you’ll be able to cancel MI (mortgage insurance). MI coverage requirements are reduced for LTV ratios above 90%.
Credit fees are capped and are also less than standard fees for loans above 80% LTV.
Single-family homes, 1-4 unit properties, condos, and planned-unit developments. Manufactured homes are also eligible with certain restrictions. Applies to primary residences only.
Homeownership Education is Required
Any borrower that appears on the mortgage note, who are first-time homebuyers, must take a homeownership course called, CreditSmart. The technical definition of a first-time homebuyer is a person with no ownership in residential property in the last three (3) years.
The course is free of charge and is available online or in-person. It takes approximately two hours to complete and you can print out a certificate when finished. The certificate is sent to your loan file where it remains after closing.
Important Points to Consider:
- In the case of a purchase transaction, if all occupying borrowers are first-time homebuyers, at least one occupying borrower must receive homeownership education.
- Homeownership education also applies for any transaction when the credit reputation for all borrowers is established using only non-credit payment references.
- Homeownership education must have a completion date no later than the note date.
- Eligible homeownership education must meet the national industry standards for Homeownership Education and Counseling or be provided by an eligible source such as:
– HUD-approved counseling agency.
– Housing Finance Agency (HFA) or community.
– Mortgage insurer.
- Homeownership education must not be provided by an originating lender, interested party to the transaction, or the mortgage seller.
- A certificate of completion must be included in the loan file.
Home Possible Income Limits
Because these particular programs are designed for low-to-moderate income borrowers, income limits apply. Your income cannot exceed the Area Median Income (AMI) where the property is located. The exception occurs in more expensive areas, such as near big cities. In these cases, higher incomes are allowed.
There is no borrower income limit in underserved or rural areas. Freddie Mac has an online tool that allows you to determine your local income limits and property eligibility. They do not require proof of stable monthly income for all borrowers signed on the mortgage. Stable means a two-year income history that shows to be currently continuous.
Obtaining a Home Possible Mortgage
Getting a Home Possible mortgage is easy. How fast you acquire it depends on how quickly you put together your pre-qualification documents and take the homeownership education course. If you can get these two things completed before you apply, you’ll close in a matter of weeks.
The key benefits of this loan type include a low down payment requirement, potentially lower interest rate, the ability to use additional income sources to qualify for the loan and possibly higher borrower income limits. The potential flaws of the program include stricter borrower qualification requirements and loan limits.
When you speak to one of our licensed mortgage experts, the pros and cons of the Home Possible Mortgage Program will be reviewed in detail:
Pros and Cons of Home Possible Purchase
- Low Down Payment. The Home Possible Mortgage Program allows you to buy a home with as little as a 3% down payment of the purchase price. All can be sourced from a gift, a down payment assistance program, or even sweat equity.
- Potentially Lower Mortgage Rate. For borrowers that meet certain criteria, the Home Possible program offers lower mortgage rates. Having a lower rate saves you money each month on your mortgage payment. It also means you’ll pay fewer interest fees over the life of your mortgage.
- Ability to Use Alternate Income Sources to Qualify for a Mortgage. For example, rental income is factored into the qualification decision. This benefit allows you to potentially qualify for a bigger loan and improves your ability to qualify for a mortgage.
- Get approved by using a non-occupant co-borrower. To help you get approved for the loan, Home Possible enables you to use a non-occupant co-borrower such as a parent or other relative that will not live in the home. Using a co-borrower gives you access to larger loan limits and easier approvals, which may not happen as a sole borrower.
- Reduced Monthly PMI Cost and Upfront Mortgage Insurance is not Required. The Home Possible mortgage program does not require you to pay an upfront mortgage insurance fee. This eliminates the need for thousands of dollars in closing costs. This is unlike government-backed low or no down payment mortgage programs such as the FHA, USDA, and VA mortgage programs.
- Potentially Higher Borrower Income Limit. Home Possible income limits may be higher than other programs for low or no down payment borrowers. For properties located in designed 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.
- Stricter Borrower Qualification Requirements. Compared to other programs, the Home Possible mortgage usually has tougher criteria when it comes to the borrower’s credit score and debt-to-income ratio
- Conforming loan limits. The Home Possible program uses the conforming loan limit, which ranges from $484,350 to $726,525 for a single-unit property. People who want to buy a property in a more expensive area will find this program to reduce their housing options.
- Typically higher interest rates than other government-backed programs. It depends on the borrower’s income and the property’s location. .
The Home Possible mortgage program has helped many people afford more home on their limited monthly budget. The flexibility of the program allows for financial creativity and more opportunities.
One of our mortgage specialists can tell you if the Home Possible program is right for you, call us at 954-507-7553 to schedule a free consultation.
Interested in learning more about how a Home Possible mortgage can help you buy a home in Florida?
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