The Freddie Mac Home Possible® loan program is a conventional mortgage designed to help low—to moderate-income borrowers achieve homeownership. Home Possible® loans have lower down payment requirements than traditional conventional loans and reduced mortgage insurance requirements, but they are only available to borrowers within a certain income range.
Home Possible® Eligibility: In a nutshell
To help encourage homeownership, the Home Possible® program has lenient credit and DTI requirements, so the best way to check eligibility is to get pre-qualified through lenders who offer the program. Generally, if you have a 620+ credit score, a DTI of 50% or lower, have enough cash for 3% down, and make less than your area's median income, you are likely eligible.
Neighbors Bank offers Home Possible® down payment assistance to help make homeownership more affordable.
Check your eligibility!
Freddie Mac Loan Requirements
To qualify for a Home Possible® mortgage, borrowers must meet specific eligibility criteria set by Freddie Mac and lenders who provide Home Possible® mortgages. These requirements include:
- Income Limits: Your income must not exceed 80% of the area median income (AMI).
- No Minimum Credit Score Requirements: Freddie Mac doesn’t set a minimum credit for Home Possible®, so lenders set their own requirements. Lenders usually require a minimum score of 620 to 660.
Neighbors Bank’s minimum credit score requirement is 620; however, a lower score may be acceptable with compensating factors. - 3% Down Payment: A down payment of 3% is required, but borrowers can use flexible sources like gifts, grants, or employer assistance for their down payment and closing costs.
Neighbors Bank offers Home Possible® down payment assistance. Check your eligibility! - Debt-to-Income Ratio (DTI): Generally, a maximum DTI of 50% is required, but some lenders may allow higher DTIs with strong compensating factors.
- Private Mortgage Insurance (PMI): Home Possible® requires private mortgage insurance when the down payment is less than 20%. PMI can be removed upon request once the loan balance reaches 80% of the home's value and is automatically canceled when equity reaches 78%. If you make a down payment of 10% or more, your mortgage insurance will be reduced.
- Loan Limits: Home Possible® loans must conform to conventional loan limits.
- Available Loan Types: The Home Possible® program offers 15- and 30-year fixed-rate* mortgages, as well as adjustable-rate mortgages (ARMs).
*Neighbors Bank typically only offers Home Possible® mortgages in 30-year terms.
How The Home Possible® Loan Works
Generally, the Home Possible® program is available for first-time and repeat homebuyers with low–to medium-income who are looking to purchase a primary residence.
Existing Home Possible® borrowers may be eligible for refinancing through Freddie Mac’s programs; however, you can not apply for a Home Possible refinance if you currently have a different mortgage type.
Home Possible® Income Limit
To check your Home Possible® income eligibility, use Freddie Mac’s online lookup tool or contact a loan expert to confirm your eligibility.
Home Possible® loan income limits are applied based on the borrower’s qualifying income, not the total household income. This means that only the income used to qualify for the loan is considered when determining if the borrower meets the program’s 80% area median income (AMI).
Additionally, income limits are based on the property’s location. For example, if the median income in the county where you want to buy is $97,000, then you (and any co-borrowers who apply) can’t make any more than $77,600 annually.
Other household members’ incomes are not included unless they are listed as co-borrowers on the loan application. However, if multiple borrowers apply together, your combined qualifying income must stay within the 80% AMI threshold.
Available Property Types
The Home Possible® program is not intended to finance second homes, investments, or vacation homes. However, the program can finance 1—to 4-unit homes, so if you plan to live in one unit, you could rent the other four.
The Home Possible® loan program is available for financing the following home types:
- Single-family, duplex, triplex, and fourplex residences
- Manufactured Homes
- Condominiums
- Barndamoniums
- Rowhouses
- Townhouses
PMI Cancellable After 80% LTV
Private mortgage insurance (PMI) is required if the down payment is less than 20%. PMI on a Home Possible® loan can be canceled once the borrower reaches 20% equity in the home.
Additionally, Home Possible® offers lower-cost PMI compared to standard conventional loans and PMI reduces once you reach 90% equity in the home.
Here’s how it works:
| Down Payment or Equity Paid | LTV Ratio | PMI Requirement |
|---|---|---|
| <5% | >95% | 25% |
| 5% to 10% | 90% to 95% | 25% |
| 10% to 15% | 85% to 90% | 12% |
| 15% to 20% | 80% to 85% | 6% |
| 20%+ | <80% | 0% |
Borrowers can also pay for PMI in different ways, such as monthly premiums or a one-time upfront payment, depending on what works best for your budget.
Homebuyer Education Course Required For First-Time Buyers
While the Home Possible® program is available to first-time and repeat homebuyers, first-time homebuyers must take a six-module home education course to secure application approval.
This course is offered for free on the Freddie Mac website through their CreditSmart® Homebuyer U platform.
Home Possible® Refinance Options
Home Possible® allows rate-and-term refinancing only, meaning borrowers with a current Home Possible® mortgage can refinance to secure a lower interest rate or adjust the loan term. The refinance must meet the same income limits as a Home Possible® purchase loan (80% of the area’s median income), and the property must remain a primary residence.
The Home Possible® program does not permit cash-out refinancing or refinancing from other mortgage loan types.
Home Possible® vs. FHA Loans
An FHA loan is a similar mortgage option catered to borrowers with lower incomes. Unlike Home Possible mortgages, they don’t have income caps to qualify.
Let’s take a look at how they compare:
| Feature | Home Possible® Loan | FHA Loan |
|---|---|---|
| Minimum Down Payment | 3% | 3.5% |
| Credit Score Requirement | 620+ (varies by lender) | 580+ (or 500 with 10% down; varies by lender) |
| Mortgage Insurance | PMI required if <20% down, but can be removed | Requires upfront and ongoing mortgage insurance for the life of the loan (unless refinanced) |
| Property Type | Primary residence only; multi-family loans allowed | Primary residence only; multi-family loans allowed |
| Income Limits | 80% of AMI | No income limits |
| Loan Limits | Conforming loan limits apply | FHA loan limits apply, which may be lower in some areas |
Own a home with as little as 3% down!
Home Possible® makes buying more accessible with flexible guidelines and low down payments.
Apply Now!
Article Sources
https://sf.freddiemac.com/working-with-us/affordable-lending/home-possible-eligibility-map
With over 11 years in the mortgage industry, Matt Roy has spent the last 7 years as an underwriter. He’s passionate about understanding the “why” behind lending decisions and helping homebuyers succeed.
