If Fannie Mae has a three-percent down payment HomeReady𝆖™ mortgage program, Freddie Mac also offers a 3% down payment Home Possible Advantage℠ mortgage. Launched in 2014, Home Possible Advantage𝆖℠ is a purchase and refinance program created for creditworthy borrowers who can’t afford a huge down payment.
How Advantageous Is Home Possible Advantage𝆖℠
Home Possible Advantage𝆖℠ offers financing of up to 97% ratio of the loan to the property value (LTV). This mortgage loan caters to qualified borrowers with low and moderate income.
Under the program, your income must not exceed the AMI (area median income) set by Freddie Mac. There are instances, however, when:
- the home is located in a designated underserved area, no income limits apply.
- the home is located in a high-cost area, your income may be up to 170% of the AMI.
These fixed-rate mortgages with terms in 15, 20 and 30 years can be used to buy a single-unit home. Home Possible Advantage℠ can also be used to refinance (no cash-out) one-to-four residential units whose existing mortgages don’t have to be owned by Freddie Mac.
A Home Possible Advantage℠ mortgage requires a minimum credit score of 620, as it varies among lenders, for both refinance and purchase transactions.
HomeReady𝆖™ vs Home Possible 𝆖Advantage℠
Let’s found out how the above conventional loans from Fannie Mae or Freddie Mac diverge or converge:
Down Payment: Both programs offer as low as 3.0% down payment, financing up to 97% LTV. Both programs also allow gifts to fund down payments.
Homeownership Education: To qualify for a HomeReady𝆖™ mortgage, you must complete an online Framework course that would cost $75. For a Home Possible Advantage𝆖℠ mortgage, you must participate in a free CreditSmart online tutorial or other borrower education courses approved by Freddie Mac.
Income: HomeReady𝆖™ has an income limit of 80% to 100% of AMI. Home Possible Advantage℠’s income limit ranges from 100% to 170% of the AMI. Both programs eliminate income limits if the property is located in an underserved area.
Loan Limits: 2017 Conforming loan limits for Fannie Mae and Freddie Mac mortgages are listed here.
LTV: Maximum LTV for both programs is 97% and total loan-to-value (TLTV) or combined loan-to-value (CLTV) is 105%.
Mortgage Insurance (MI): HomeReady™ loans with LTV ratios of or below 90% require standard Fannie Mae mortgage insurance. For those whose LTVs exceed 90%, 25% percent MI coverage is required. Home Possible Advantage℠ mortgages have required MI coverage of 12% for LTV ratios between 80% and 85% LTV. For loans exceeding that and up to 97% LTV, the required MI is 25%.
Now, you have another mortgage program to choose from. Freddie Mac’s Home Possible Advantage℠ is just one of the many mortgage programs offered by lenders in today’s market.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.