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® vs. HomeReady® Loans
Home Possible® and HomeReady® are similar conventional loan programs designed to make homeownership more accessible for buyers with lower incomes. Both allow eligible buyers to put as little as 3% down, generally limit qualifying income to 80% of the area median income (AMI) and offer flexibility for certain down payment and closing cost sources.
One of the main differences is who offers each program. Home Possible® is a Freddie Mac program, while HomeReady® is offered through Fannie Mae. They also use different underwriting systems and have some differences in their guidelines.
For many homebuyers, either program could be an option. Your lender can compare your eligibility under each program and help you understand which one better fits your income, credit profile, property and homebuying goals.
Freddie Mac Home Possible® 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).
Credit Requirements: Home Possible® doesn't have one minimum credit score that applies to every loan. For loans evaluated through Freddie Mac's Loan Product Advisor (LPA), your broader credit profile and other financial factors determine whether the loan receives an "Accept" decision. Manually underwritten loans have different credit requirements, and individual lenders may also set their own standards.
Neighbors Bank typically requires a minimum credit score of 620.
3% Minimum Down Payment: Eligible buyers can put as little as 3% down. Home Possible® also allows flexible sources of funds, including eligible gifts, grants and employer assistance, to help cover upfront costs.
Neighbors Bank offers down payment assistance programs. Check your eligibility!
Debt-to-Income Ratio (DTI): There isn't one DTI limit that applies to every Home Possible® loan. Your lender will consider your monthly debts along with your income and other financial details when determining eligibility.
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.
Neighborly AdviceSaving for a down payment can be one of the biggest hurdles in owning your own home. With Home Possible®, that minimum down payment requirement is only 3% - even less than the standard FHA requirement of 3.5%. For buyers who meet the program's income limits, that smaller upfront requirement can make homeownership feel much more within reach.
How The Home Possible® Loan Works
Home Possible® is available to eligible first-time and repeat buyers purchasing a primary residence. Your income, property, credit profile and other financial details will help determine whether you qualify.
Freddie Mac sets the guidelines for Home Possible®, but it doesn't lend money directly to homebuyers. Instead, you apply through a mortgage lender that offers the program. Because lenders may have their own requirements in addition to Freddie Mac's guidelines, eligibility can vary from one lender to another.
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 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 three.
The Home Possible® loan program is available for financing the following home types:
Single-family homes
Duplexes, triplexes and fourplexes
Condominiums
Townhouses
Eligible manufactured homes
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 private mortgage insurance compared to standard conventional loans. It's based on your starting equity from your down payment, and it can be canceled once you reach 20% 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% | 25% |
| 15% to 20% | 80% to 85% | 12% |
| 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 Homebuyers
You don't have to be a first-time homebuyer to use Home Possible®. However, if everyone on the loan who will live in the home is a first-time buyer, at least one borrower must complete an approved homeownership education program before closing.
A common option is Freddie Mac's CreditSmart® Homebuyer U course offered for free through their website.
Home Possible® Loan Refinance Options
Home Possible® can also be used for eligible "no cash-out" refinances. This type of refinance can help you change your loan terms without taking cash out of your home's equity.
You'll still need to meet Home Possible® eligibility requirements, including the program's income limit and applicable underwriting guidelines. Cash-out refinancing isn't available through Home Possible®.
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 | Varies by lender | Potentially 580+ (or 500 with 10% down) but varies by lender |
| Mortgage Insurance | PMI required if <20% down, but can be removed | Typically requires upfront and ongoing mortgage insurance* |
| 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 |
*Note: Annual MIP generally lasts for the life of the loan when the original LTV is greater than 90%. For loans with an original LTV of 90% or less, annual MIP generally ends after 11 years. You can also refinance from FHA to a conventional loan later on.
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.