How Does the Home Possible Mortgage Work?
Buying a home is a dream of many, but these purchases can be complicated and some first-time homebuyers struggle to get a place of their own.
A down payment is one of the biggest hurdles to homeownership. To overcome this challenge and start building equity, some buyers need a program that allows them to put down the least amount of money.
You might be familiar with Fannie Mae’s HomeReady mortgage that approves borrowers for conventional financing with as little as 3% down. But this isn’t the only option. Freddie Mac’s Home Possible mortgage is a similar low down payment solution for low-to-moderate income borrowers.
Here’s what you need to know when deciding whether this program is right for you.
1. Low down payment
Being able to purchase a home with less than 20% down can put homeownership within reach. Freddie Mac’s Home Possible mortgage allows you to purchase with as little as 3% down (Home Possible Advantage), or 5% down (Home Possible).
If you purchase a $200,000 house with 20% down, you would need to bring a minimum of $40,000 to closing. With a low-down Home Possible loan, you would only need a minimum down payment between $6,000 and $10,000.
2. Gift funds as a down payment source
For borrowers who have difficulty coming up with 3% or 5% down for a mortgage, the Home Possible mortgage also allows different down payment sources. The money doesn’t have to come from your own funds, but can also come from a family member, an employer-assistance programs, or an organization.
In addition, Freddie Mac doesn’t require a minimum borrower contribution on 1-to-4 unit properties, so you can use gift funds for all of your downpayment and/or closing costs.
3. You don’t have to be a first-time homebuyer
While Home Possible can benefit first-time homebuyers, you don’t have to be a first-time buyer to take advantage of the program.
If you are a first-time home buyer, however, you will have to attend homebuyer education as a requirement for the loan. This education guides you through the home purchase and prepares you for what lies ahead.
The primary goal is to help you succeed as a homeowner. You’ll learn about managing a mortgage, down payments, different loan programs and more. You can skip this homebuyer education if one borrower on the mortgage application isn’t a first-time homebuyer.
4. Property requirements
Freddie Mac’s Home Possible is only available for the purchase of a primary residence. You cannot use this program if you’re purchasing a vacation house or a rental.
5. Other benefits
If you acquire a Home Possible loan through Cherry Creek Mortgage, you’ll receive our Payment Assurance Program, which provides up to $1,500 to help pay your mortgage, for up to six months, in the event of an involuntary job loss. This offers added peace of mind.
This program also has a reduced monthly mortgage insurance cost, resulting in a lower, more affordable payment. Mortgage insurance protects the lender in the event of default, and it is required on most home purchases with less than a 20% down payment.
It’s also worth noting that mortgage insurance isn’t for the life of the loan with a Home Possible mortgage. The insurance is cancellable once your home loan balance drops below 80% of the property’s appraised value.
Cherry Creek Mortgage understands the sense of accomplishment that comes with a home purchase. We also recognize the challenges many borrowers face when applying for a mortgage. This is why we offer a host of programs for clients at different stages in life.
Whether you’re buying or refinancing, give us a call to learn more.