Borrowers with limited credit and savings have more options with a new suite of mortgage products from Freddie Mac, including the Home Possible Mortgage and the Home Possible Neighborhood Solution Mortgages.
The new Home Possible Mortgage combines borrower education and early delinquency counseling, zero and 3 percent down payment mortgage products, and flexible credit requirements.
An additional new program, Home Possible Neighborhood Solution Mortgages, offers the same flexibility plus special features designed to boost home-buying options for teachers, law enforcement officers, firefighters and health care workers by as much as 30 percent in some cases.
The loan products are available through Freddie Mac’s national network of more than 2,000 lenders and 10,000 mortgage brokers using Loan Prospector, Freddie Mac’s automated underwriting service.
Both products are available as 15-, 20- and 30-year fixed-rate mortgages or as 7/1 or 10/1 adjustable-rate mortgages for one-unit properties.
The basic Home Possible mortgage is available either as a 100 percent loan-to-value mortgage that borrowers can use for single-family home purchases and no-cash-out refinancing, or as a 97 percent loan-to-value mortgage for one- to four-unit properties. Both the zero and 3 percent down payment versions of Home Possible allow borrowers to put down as little as $500 from their personal funds towards the down payment and closing costs for a one-unit property. Two-unit properties require borrowers to put in 3 percent of the property’s value; 3-4-unit properties and manufactured homes require a 5 percent borrower contribution.
By combining a temporary subsidy buy-down with a higher debt-to-income ratio, Home Possible Neighborhood Solution is designed to boost the home-buying power of teachers, firefighters, law enforcement officers, and health care workers by as much as 30 percent. For example, a borrower with adequate reserves earning $2,761 a month and making a 3 percent downpayment can boost her home-buying power from $200,000 to $260,400 by opting for a Home Possible Neighborhood Solution Mortgage over standard 97 percent loan-to-value mortgages, all other things being equal.
Home Possible Neighborhood Solution Mortgages allow for even higher debt-to-income ratios than a typical high LTV mortgage as well as a three-year subsidy buy-down that reduces the initial interest rate as much as 1.5 percentage points in the first year and 0.5 percentage points per year for the next two. The buy downs can come from a wide range of sources, such as gifts or grants. Qualified borrowers can use Home Possible Neighborhood Solution Mortgages to finance 1-2 unit properties in or near the communities they serve.
To qualify, borrowers can earn up to their area’s median income or if they earn more than the area median income – can buy or refinance a home in an underserved market area. All borrowers must complete a pre-purchase borrower education program. A 2001 Freddie Mac study found that pre- and post-purchase counseling programs significantly reduce mortgage delinquencies and help more borrowers succeed as long-term homeowners.
In addition, Home Possible borrowers financing a 2-4-unit property may have reserves reduced to two months of mortgage payment; no reserves are required for financing a one-unit property. However, Home Possible Neighborhood Solutions’ borrowers must have one-month of reserves, either from their own cash or a gift.
Originators can sell Home Possible Mortgages to Freddie Mac through Cash, Guarantor, or MultiLender executions with servicing retained. Lenders can conduct transfers of servicing with Freddie Mac Tier I or Tier II servicers.
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