Mortgage

Freddie Mac takes aim at FHA with widespread expansion of 3% down mortgages

New HomeOne mortgage has no geographic or income restrictions

It’s been more than three years since Freddie Mac rolled out a conventional mortgage that only required a 3% down payment for certain borrowers.

The program, which is designed for qualified low-and moderate-income borrowers, saw reasonable progress over the last few years, with Federal Housing Finance Agency Director Mel Watt telling Congress last year that Freddie’s 3% down program (along with a similar one from Fannie Mae) was continuing to grow.

But now, Freddie Mac is about to supercharge its 3% down program and launch a widespread expansion of the offering.

Freddie Mac announced Thursday that it is rolling out a new conventional 3% down payment option for qualified first-time homebuyers. What makes this program different is that there are no geographic or income restrictions.

The new program, which is called HomeOne, puts Freddie Mac in direct competition for mortgage business with the Federal Housing Administration, which also only requires 3% down on some mortgages.

According to Freddie Mac, this new offering is not replacing its Home Possible 3% down mortgages. Rather, the program is meant to complement the Home Possible program, which will still be available to low-and moderate-income borrowers.

Freddie Mac said that the new mortgage is designed for first-time homebuyers, who currently make up nearly half of all home purchases.

According to Freddie Mac, a HomeOne mortgage must be underwritten through its Loan Product Advisor, which makes a complete risk assessment based on several factors as it relates to credit, capacity and collateral.

Additionally, the HomeOne mortgage is offered only for conforming fixed-rate mortgages that are secured by a 1-unit primary residence. And, at least one of the borrowers must be a first-time homebuyer.

When all the borrowers are first-time homebuyers, at least one borrower must participate in homeownership education in order to qualify for the mortgage.

The loan can also be used for single-family homes, condos, and townhouses. Manufactured homes are not eligible.

“Freddie Mac’s HomeOne mortgage is part of the company’s ongoing efforts to support responsible lending, provide sustainable homeownership and improve access to credit,” Danny Gardner, senior vice president of single-family affordable lending and access to credit at Freddie Mac, said in a statement.

The HomeOne mortgage will provide our customers the flexibility they need to help borrowers anywhere in the country achieve the milestone of homeownership and overcome the common down payment resource hurdle,” Gardner continued. “HomeOne is a great solution for aspiring homebuyers to grab that first rung of the property ladder and enjoy the financial and social benefits of participating in homeownership.”

In conjunction with making the HomeOne announcement and due to HomeOne’s ability to increase access to credit for first-time buyers, Freddie Mac said that it will be making some changes to the Home Possible program in order to “sharpen its focus” on low-and moderate-income borrowers.

Specifically, Home Possible income limits will be capped at 100% of area median income for properties in designated high-cost areas, designated disaster areas and minority census tracts, except for low-income census tracks, which will continue to have no limits.

According to Freddie Mac, the new HomeOne mortgage will be available beginning July 29, 2018. The income changes for Home Possible will go into effect on the same day.

For much more, check out these materials from Freddie Mac on the program.

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