Down payment is often the largest hurdle to homeownership, especially for first-time homebuyers with little savings.
But assistance from the Freddie Mac BorrowSmart℠ program can take a bite out of your down payment and closing costs. In some cases, it may even provide all of the cash you need to close on a home.
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What to know about Freddie Mac BorrowSmart
The Freddie Mac BorrowSmart program can provide up to $2,500 in down payment/closing cost assistance based on area median income (AMI) and other eligibility criteria. It may be used to cover 100% of funds needed to close.
The program works in conjunction with the Freddie Mac Home Possible® and Freddie Mac HomeOneSM mortgage offerings, which require as little as 3% down (more on these programs below). It can be used with fixed and adjustable-rate loans to purchase single family homes, condos, planned unit developments (PUDs), and manufactured homes (not eligible for HomeOne).
Freddie Mac BorrowSmart has three tiers. The level of assistance is based on the borrower’s qualifying income in relation to the county AMI of the purchase area.
Moderate-Income Purchase (MIP):
- Above 80% AMI and at or below 100% AMI
- Purchase property must be in high needs tract
- HomeOne program only
- Down payment assistance: $1,000
Low-Income Purchase (LIP):
- Above 50% AMI and at or below 80% AMI
- Home Possible program only
- Down payment assistance: $1,000
Very Low-Income Purchase (VLIP):
- At or below 50% AMI
- Home Possible program only
- Down payment assistance: $2,500
For example, if the AMI is $62,900 and your qualifying income is $45,000, you would be eligible for the Low-Income Purchase assistance of $1,000 since it is between 50% and 80% of the AMI.
Example home purchase
Let’s look at how an eligible Freddie Mac BorrowSmart buyer with income below 50% of the AMI could benefit.
- Purchase price: $200,000
- Down payment: $6,000 (3%)
- Closing costs: $3,000
- Total needed to close: $9,000
Sources of funds
- Seller credit: $1,000
- Down payment gift from family: $5,000
- Freddie Mac BorrowSmart Assistance amount: $2,500
- Cash from buyer: $500
This buyer’s cash requirement was reduced from $9,000 to just $500 thanks to flexibilities with the Home Possible mortgage offering combined with Freddie Mac BorrowSmart.
Check your AMI and high needs area eligibility
If you’re like most people, you don’t know your city’s AMI off the top of your head. That’s okay. To find out, use Freddie Mac’s Home Possible Income and Property Eligibility Tool.
If your income is above 80% of the AMI, you’ll also need to be in a high needs area. On the eligibility search through the eligibility tool, the ‘High Needs Rural Tract’ will reflect “Yes” if eligible or “No” if not eligible.
If the property is eligible for Home Possible, you will see the Home Possible Income Limit listed, and then will determine the AMI you fall within, via the 50%, 80%, or 100% categories listed.
Combine Freddie Mac BorrowSmart assistance with other down payment programs
Eligible buyers can combine Freddie Mac BorrowSmart assistance with gifts and other down payment assistance from:
- Eligible nonprofits or government agencies
- Employer Assisted Homeownership programs and Affordable Seconds
- Other down payment assistance programs
Buyers must use assistance to meet down payment and closing costs or to buy down the mortgage note rate. It cannot be refunded as cash.
The benefits of the Freddie Mac BorrowSmart program for homebuyers
Freddie Mac BorrowSmart assistance benefits low-income homebuyers in a few ways. First, the assistance may be used to fund up to 100% of borrower’s required cash to close. Imagine buying a home without putting anything down!
Even if it doesn’t cover all of the cash to close, it allows buyers to bring less money to the closing table. That leaves a little more in your pocket for the fun stuff later on like maintenance, mortgage payments, and emergencies.
Second, the mandatory homebuyer counseling prepares buyers for long-term sustainable homeownership. (We’ll circle back to this below).
Finally, the assistance may instill greater confidence and purchasing power in a competitive housing market.
How to qualify for Freddie Mac BorrowSmart assistance
Freddie Mac BorrowSmart assistance is only available to buyers that meet certain requirements.
First, you need a qualifying income level at or below 100% of the AMI of the purchase area. Then, narrow down the property type and the purchase area (down to county and zip code).
Eligible property types include
- Single family residences (1 to 4 units)
- Planned unit developments
- Manufactured homes (not eligible for HomeOne)
Freddie Mac BorrowSmart is available in every state except Hawaii and Alaska.
When you have an eligible purchase in mind, complete a “warm transfer” call to conduct an eligibility assessment with the Homeownership Preservation Foundation (HPF)
They will guide you through the process and direct eligible borrowers to a HUD-certified counselor for pre-purchase counseling. This session costs $99 and takes 45-60 minutes. Upon completion, you’ll receive a certificate from HPF that’s valid for 12 months.
Finally, you must use a Freddie Mac HomeOne or Home Possible mortgage to be eligible for Freddie Mac BorrowSmart assistance.
About HomeOne and Home Possible
HomeOne and Home Possible are Freddie Mac mortgage offerings that specifically fit the needs of first-time and low-income homebuyers.
As the name suggests, HomeOne is a mortgage option for first-time homebuyers with no geographic or income limits.
To qualify, at least one borrower must be a first-time homebuyer, meaning they haven’t had ownership interest in a home for three years. If both borrowers are first-time homeowners, a homebuyer education course is required.
Freddie Mac requires at least one borrower to have a usable credit history, but does not set a minimum credit score. However, lenders usually require a minimum credit score of 620-660.
- Minimum 3% down payment
- Fixed rate, conventional mortgage only
- 1-unit properties, including condos and planned unit developments (but not manufactured homes)
- Must live in home as primary residence
- Mortgage insurance required until borrower has 20% equity in home
The Home Possible program seeks to help very low- to low-income borrowers achieve homeownership by allowing a variety of down payment assistance, such as gifts from family, employer-assistance, secondary financing, sweat equity, BorrowSmart and more.
Home Possible borrowers must have a qualifying income of less than 80% of the AMI. Use this map to find the AMI of your purchase area. Unlike HomeOne, Home Possible is not restricted to first-time homebuyers. If both borrowers are first-time homebuyers, a homeownership education course is required.
This mortgage type is eligible for 1-4 unit properties, condos, planned unit developments and manufactured homes (with certain restrictions). One borrower must use the property as a primary residence, but non-occupying borrowers are allowed to be on the loan.
For single-unit purchases, borrowers are not required to use any of their own cash for the 3% minimum down payment — it can come entirely from gifts and down payment assistance.
Home Possible features:
- Minimum 3% down, 5% if borrower does not have a credit score
- Variety of down payment assistance options
- Minimum credit score of 620-680, depending on lender
- Eligible for variety of fixed- and adjustable-rate mortgages
- Borrowers can cancel mortgage insurance when they reach 20% equity
Summary: How to qualify for the BorrowSmart program
Following is a summary of basic qualification criteria for the program
- Your income is above 80% and at or below 100% of the AMI and the property is in a high needs area as indicated in the Freddie Mac Home Possible Income and Property Eligibility Tool
- Your income is at or below 80% of the AMI
- You are applying for a Freddie Mac HomeOne or Home Possible mortgage (no other loan types are compatible with BorrowSmart)
- You are not buying a second home, investment property, or Co-op
For those eligible, the Freddie Mac BorrowSmart program is a relatively easy way to bring more money to the closing table or save money for expenses down the line. You might even learn a thing or two during the homebuying counseling session.
Better yet, this assistance can be combined with gifts from family members and other down payment assistance.
*Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation, which has not been reviewed by underwriting. If you have submitted verifying documentation, you have done so voluntarily. Final loan approval is subject to a full underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.
Eligibility subject to program stipulations, qualifying factors, applicable income and debt-to-income (DTI) restrictions, and property limits.
Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.