In December, Fannie Mae and Freddie Mac launched Home Possible Advantage, a program that makes it possible for buyers to purchase a home with a smaller down payment. Through the program, low- and moderate-income buyers can qualify for loans with down payments as low as three percent. The program will open up the housing market to responsible buyers who do not have enough saved for a large down payment. Any risk of default is lessened by strong underwriting standards.
Home Possible Advantage mortgages are available as 15-, 20- and 30-year fixed-rate mortgages, with a maximum loan-to-value ratio of 97 percent. Mortgages can only be used to purchase single-unit properties. But the program isn't just for homebuyers; homeowners can also use the program to refinance their current mortgage, as long as that refinance is no-cash out.
The Home Possible Advantage program is available to all buyers, not just first-timers. But there are several restrictions for buyers. First, you must live in the home you purchase; the program cannot be used to buy rental properties. Second, if you are a first-time buyer-a borrower who has not owned a residential property in the last three years-you will need to participate in a borrower education program, like Freddie Mac's CreditSmart. And lastly, if your Home Possible Advantage mortgage is underwritten manually by a lender, you must have a credit score of 660, or 680 for refinances. If you have a weaker credit score, you can use Freddie Mac's automated underwriting system, Loan Prospector. This system considers a loan based on multiple factors; a weak credit score won't necessarily disqualify you if you have a number of other positive factors.