Freddie Mac HomeOne mortgage program: 3% down with NO income restrictions

New Freddie Mac HomeOne 3% down mortgage program

The Freddie Mac HomeOne mortgage, a new 97 percent loan program, is now available. But, surprisingly, no one is talking about it.

It’s a big deal because restrictions applied to a the 3% down Home Possible program have been removed.

1. HomeOne has NO income limits
2. HomeOne has NO geographic restrictions (you don’t have to buy in a low-income census tract)

Despite fewer restrictions, the loan only requires a 3% down payment.

This could be the low-down-payment loan home buyers have been waiting for.

Compared to FHA loans, HomeOne may be a better fit for many buyers.

HomeOne advantages

The advantages of this program are clear. You can make as much money as you want, choose to live anywhere, and still be eligible for 3% down.

The former Freddie Mac program, Home Possible, required the applicant to either 1) make low-to-moderate income, 2) live in an underserved (and potentially undesirable) census tract, or 3) put down 5% to waive these restrictions.

While their income appears high “on paper,” their actual disposable income available to save for a down payment is limited.

HomeOne opens the door for cash-strapped, younger home buyers with higher incomes to break into homeownership.

Many younger buyers — who are new in their careers — probably have student loans. So, while their income appears high “on paper,” their actual disposable income available to save for a down payment is limited.

HomeOne seeks to help this type of prospective home buyer.

Qualifying for HomeOne Freddie Mac 97 percent financing

To be eligible for HomeOne:

1. At least one borrower must be a first-time homebuyer
2. The property must be a one-unit primary residence including single-family residences, townhomes, and condos
3. You need at least 3 percent for your down payment
4. Homebuyer education is required

Freddie Mac may consider you a first-time homebuyer even if you have owned property before. If all buyers are first-timers, at least one will have to complete an approved homebuyer education.

However, when you apply for a mortgage program, you don’t just have to be eligible. Eligibility means you are allowed to apply for the loan. Qualifying for the loan means you also meet the lender’s guidelines — credit history and score, assets and income, for instance.

In addition, you must have a usable credit score that will allow the lender to underwrite the loan using Freddie Mac’s automated system. The software will either accept or reject your application, and it only takes a few minutes.

If you get an “accept” recommendation, and your documents match your income and asset information in the application, you can use the program. If your application requires manual underwriting, you are not eligible for HomeOne.

Finally, the property must also meet the lender guidelines and the appraisal must be acceptable to the lender.

HomeOne vs FHA

While FHA mortgages have flexible underwriting guidelines and require just 3.5 percent down, they come with several drawbacks.

• FHA home loans require an upfront mortgage insurance premium (MIP) of 1.75 percent of the loan amount.
• FHA imposes annual mortgage insurance, typically 0.85% of the loan amount per year (about $70 per month for every $100,000 borrowed)
• FHA mortgage insurance cannot be canceled regardless until you refinance into another loan type

HomeOne is better for some borrowers.

• Conventional loans, including Freddie Mac’s HomeOne, does not require an upfront fee
• PMI is cancelable when your loan balance reaches 78% of the home’s value
• You can receive a lower monthly PMI payment than with FHA with a good credit score

However, mortgage insurance could be higher than FHA’s if you have a lower credit score. Ask your lender to compare both scenarios.

In brief, if you have good income, a great credit score, and have been responsible with your finances up to this point, HomeOne will probably suit you better than FHA.

What’s the minimum HomeOne credit score?

The program usually requires a credit score of 660 or higher. At least one borrower must have a traditional credit score to qualify (non-traditional credit reports and scores are not allowed for both borrowers).

What is the maximum debt-to-income ratio?

There is no set maximum, but you must have a debt-to-income ratio below 45% in most cases. That means no more than 45% of your gross income can go toward your total housing payment including principal, interest, mortgage insurance, taxes, homeowner’s insurance, and HOA dues.

How does Freddie Mac define “first time home buyer?”

This guideline is actually pretty generous. You may be eligible for HomeOne even if you owned a home in the past. Here’s what can make you eligible:

• You have had no ownership interest in a residential property during the three-year period before buying a home
• Displaced homemakers or single parents may qualify if their only homeownership in the last three years was joint with a former spouse and the home was their primary residence

You can purchase a home with HomeOne if at least one borrower on the loan is a first-time buyer.

Where do I get the required homeownership education?

If all borrowers are first-time home buyers, you will need homeownership education. Freddie Mac’s CreditSmart® training is free and an acceptable education source.

Can I refinance my home using HomeOne?

Yes. You may use HomeOne to refinance if you have at least 3% equity. If you have less than 3% equity, use the Freddie Mac Enhanced Relief Refinance (FMERR).

New and improved Home Possible

Freddie Mac’s Home Possible program, instituted in 2015, increased the availability of conventional (non-government) financing to buyers with small down payments. However, the minimum down payment was 5 percent for most applicants.

Only those who qualified for Home Possible Advantage could apply for a Freddie Mac 3% down loan. And that meant meeting income restrictions that depended on the local cost of housing. Danny Gardner, a senior vice president with Freddie Mac, said in a National Mortgage News interview that the program had some problems.

For example, a loan could be derailed by a lender finding extra income, for instance, from a spouse. This would push the applicant over the income limit.

“That caused a level of complexity for lenders and consumers to understand those nuances,” Gardner said. “By having a more broad-based product where the metric is whether or not you are a first-time homebuyer makes those other if/then statements obsolete and lenders can be more confident promoting an option for borrowers.”

Apply for HomeOne

Lenders are now accepting HomeOne loan applications. If you’ve been locked out of homeownership due to income restrictions or down payment requirements, now is the time to apply