Despite what many first-time mortgage shoppers imagine, Freddie Mac and Fannie Mae aren’t members of the cast of “The Beverly Hillbillies.”
They are both what are known in the economic world as Government Sponsored Enterprises, or GSE for short, and since they have some pretty impressive loan products out right now you should get to know them.
Today, we introduce you to a Freddie Mac program that we’re particularly fond of.
First, some history
Freddie Mac stands for Federal Home Loan Mortgage Corporation. Both it and Fannie Mae were created by Congress, Fannie in 1938 and Freddie in 1970.
What they do, in a nutshell, is buy mortgages from lenders and either hang on to them or bundle them into what are known as “mortgage-backed securities” which are then sold to investors.
Their most important function, at least for consumers, is that the money they spend buying these mortgages is then used by the lender to make more loans. In essence, they help ensure that there is always a continuous supply of mortgage money.
A home is possible, even with a low income
The Freddie Mac Home Possible® mortgage helps “…very low to low-income borrowers attain the dream of owning a home,” according to the GSE’s website.
Our favorite feature of the product is the down payment—as little as 3%. But there is more:
- The down payment funds can come from a variety of sources, including gifts, a second mortgage and grants.
- Co-borrowers who do not live in the home can be included (on the purchase of a one-unit residence).
- Yes, you can have another financed property and still qualify.
You will be required to purchase private mortgage insurance (PMI) unless you put 20 percent of the loan amount down.
Unlike the FHA-backed loan where the mortgage insurance remains in place for the life of the loan, once your Home Possible loan balance falls lower than 80% of the home’s appraised value and “… cancellation criteria is met,” you can cancel the PMI.
How to Qualify
You’ll need to meet the lender’s credit score requirements (typically 680, although you may qualify with a lower score), your earnings must not exceed 2021 area median income (AMI) limits and you’ll need proof of funds for the down payment and closing costs.
You can find your area’s 2021 AMI at fanniemae.com.
If this will be your first home, you’ll also need to attend a homebuyer education course.
To apply, contact a mortgage lender and let him or her know you’re interested in the Home Possible mortgage.
While we aren’t mortgage professionals, we are happy to refer you to someone we know and trust. Give us a call!