December 11th, 2014 9:00 AM by Jackie A. Graves, President
Today Freddie Mac launched Home
Possible AdvantageSM, a new
affordable mortgage with a down payment option as low as 3%. Here are the
answers to your top questions:
Who is this mortgage for?
The Home Possible Advantage mortgage is for low and moderate-income borrowers
with limited savings, including first-time homebuyers.
What do I need to qualify for it?
Generally, you need to meet minimum credit requirements,
earn no more than 100% of your area median income and have the funds to meet
the down payment requirements and closing costs. First-time homebuyers must participate in an
acceptable borrower education program, like Freddie Mac's CreditSmart.
Can I use gift funds as my down payment?
Yes, the 3% down payment can come from a number of sources, including personal
funds, gift funds, grants andaffordable second mortgages.
Will I have to pay private mortgage insurance
(PMI) on Home Possible Advantage mortgage? How much will this add to my
Yes, like all conventional, conforming mortgages backed by Freddie Mac, loans
without at least a 20% down payment require some form of credit enhancement or
insurance, usually in the form of PMI. This serves as an added insurance policy
that protects the lender/investor if you are unable to pay your mortgage.
The cost of PMI varies
based on your loan-to-value ratio – the amount you owe on your mortgage
compared to its value – and credit score, but you can expect to pay between $40
and $80 per month for every $100,000 borrowed. And, once you've built
equity of at least 20% in your home, making the amount you owe on your mortgage
80% or less of its value, you can cancel your PMI and remove that added expense
from your monthly payment.
Can I use it to refinance my current mortgage?
Yes, Home Possible Advantage mortgages can be used for a "no cash
out" refinance of an existing mortgage. It's available in 15-, 20-, and
30-year fixed-rate terms.
Why is Home Possible Advantage different than
the low down payment mortgages of the past?
The keys to responsible lending are responsible underwriting and product
design, and we designed Home Possible Advantage with the appropriate credit
underwriting requirements for today's market. Home Possible Advantage has
tougher credit standards than low down payment mortgages of the past, including
lower DTI ratios, fixed-rate terms and requires full documentation,
owner-occupation and housing counseling.
Where can I get more information on Home Possible
Visit freddiemac.com or talk to a lender or a housing
counselor about your options.
What other options are available to me if I
don't qualify for a Home Possible Advantage mortgage?
You have a number of choices even if you don't have a 20% down payment – a growing number of today's buyers are putting down between 5 and 10%.
Sure, you'll have to pay PMI, but it means you'll be able to take advantage of
today's historically low mortgage rates and affordable home prices in
many parts of the country. Talk to a lender today.
What advice do you have for homebuyers in
Do your homework. Understand how much you can afford and
what to expect during the mortgage process.
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