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Freddie Mac Home Possible®: A Flexible, 3% Down Loan for Homebuyers

Freddie Mac Home Possible®: A Flexible, 3% Down Loan for Homebuyers
Casey Morris
Home.com Editor

Here’s a truth about homebuying that a lot of people don’t know: Buying a house isn’t as hard as it used to be.

There was a time when you needed 20% down in cash to purchase a home. But that’s not the case anymore. You can buy a house with just 3% down.

And loans like the Freddie Mac Home Possible® mortgage, which are designed specifically to help low- and moderate-income borrowers buy a home, give you flexibility in how you reach that 3% threshold.

What's in this Article?

What is Freddie Mac Home Possible?
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How to qualify
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I don’t have enough cash for 3% down. Can I still qualify?
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How to use sweat equity toward your down payment
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Alternatives to Freddie Mac Home Possible
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Frequently asked questions
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Key takeaways
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What is Freddie Mac Home Possible?

The Freddie Mac Home Possible loan is a conventional mortgage that allows you to buy a home with as little as 3% down. It was created to make homeownership accessible to more people, so borrowers must earn at or below the income limits for their area.

Freddie Mac Home Possible mortgages offer homebuyers flexibility. You can use a variety of sources to cover your down payment and closing costs, so you may qualify even if you have limited cash on hand to put toward the home.

And you can use roommate income on your application, in addition to any other incoming sources you use to qualify. That can boost your chances of being approved, as well as potentially increase the amount you can borrow (which means you may be able to afford a larger house or a property in an in-demand area).

To qualify, the roommate must have paid you rent for at least nine out of the past 12 months, and they must plan to live with you in your new property

How to qualify for a Freddie Mac Home Possible mortgage

Here’s what you’ll need to qualify for a Freddie Mac Home Possible mortgage:

  • 620 or higher credit score
  • 3% down payment
  • A debt-to-income ratio of 45% or less
  • Be at or below the income limits in your area
  • Buy a qualifying property type
  • The home must be your primary residence
  • Complete an online homebuyer education course if you are a first-time homebuyer

Freddie Mac Home Possible income limits

The income limits for Freddie Mac Home Possible loans depend on where you live. They are set at 80% of the area median income (AMI), which varies throughout the country.

A few examples as of area income limits for the program are as follows. Keep in mind that some locations contain multiple income limits, so check the exact address of the property for accuracy.

  • Dallas, Texas: $68,640
  • Seattle, Wash.: $87,600
  • Tallahassee, Fla.: $60,720
  • Fargo, N.D.: $73,040
  • Sacramento, Calif.: $72,720

You can look up the income limits in your area using the Home Possible eligibility tool.

Eligible home types for a Freddie Mac Home Possible mortgage

The following property types are eligible for a Freddie Mac Home Possible mortgage:

  • Single-family home
  • Townhouse
  • Condo
  • Manufactured home
  • Multifamily property with up to four units

I don’t have enough cash for 3% down. Can I still qualify?

Here’s the great thing about the Freddie Mac Home Possible mortgage. You will need to put 3% down – but the money doesn’t have to come from your own cash savings if you are buying a single-family home that you will live in.

Freddie Mac does not require a minimum borrower contribution for homebuyers who are purchasing a single-family primary residence, such as a house, townhouse, condo, or manufactured home. That means that you can use funds from other sources for your down payment, including:

  • Gift funds from friends or family
  • Down payment assistance from an employer program
  • Down payment assistance from a non-profit or charity
  • Down payment assistance from a state or local housing authority
  • Funds from a Freddie Mac Affordable Second loan (a secondary mortgage on your home that can be used toward down payment and closing costs
  • Funds from an unsecured personal loan

What makes Freddie Mac Home Possible mortgages unique, however, is that you can use sweat equity toward your down payment.

How to use sweat equity toward your down payment

Sweat equity refers to work you do to improve the condition of the home. That includes:

  • Labor on repairs to the home
  • Cost of materials used in repairs to the home

In order for your sweat equity to qualify, you will need:

  • An appraiser or cost-estimator to determine the value of the labor and submit a formal estimate to your lender
  • Proof of the value of the materials you’ve purchased, either via receipts or an estimate from an appraiser or cost-estimator

Sweat equity credit only applies only to work completed based on the appraisal report. Any improvements made to the home prior to the seller accepting your offer, or prior to the appraisal, cannot be included in the sweat equity contribution.

Additionally, to be eligible, the repair work must be noted in the appraisal report. Typically, the sweat equity work should be based on issues in the home that need to be repaired before the lender can approve the loan. The repairs must also be spelled out in the sale contract for the home and the appraisal report.

How much sweat equity can you use toward your Freddie Mac Home Possible down payment?

The great thing about the sweat equity option is that there is no limit to the amount of sweat equity that can be applied toward your down payment. You can put in enough labor and materials to meet the 3% minimum down payment requirement, or you can exceed that minimum to achieve 10% or 20% down.

You can also use sweat equity plus other types of funds to come up with your down payment.

Maybe you need $10,000 for a down payment. You have $3,000 in gift funds from a relative, $3,000 in down payment assistance from a local housing program, and you’re willing to put in the remaining $4,000 in sweat equity.

Freddie Mac allows you to combine resources in this way to qualify for the home.

Should you take the sweat equity option?

Committing to sweat equity is a big decision, since it adds a few more hurdles to qualifying for the loan.

Repairs must be based on the appraisal report

You’ll have to get the home appraised prior to beginning the work, and you’ll have to focus on any repairs that currently make the home non-lendable. 

If there’s a room in the house or a structure on the property that’s marked as hazardous or another risk, your lender may require it to be taken down or repaired before they can approve the loan.

You need sufficient time and skills to make the repairs 

Doing this work yourself allows you to be hands-on in the home and ensure that the repairs are done right. But consider whether you have the time and skills to complete these projects. If you work a full-time job and have limited home maintenance experience, sweat equity may not be the best way to get the home.

The seller must agree to let you do the work before closing

And while you may be willing to do the work and cover the costs of materials, your seller must be on board, too. They still own the home, and they may be wary of letting someone else work on the property because they’re liable for any injuries or accidents that might occur.

Plus, if something goes wrong during repairs and the home is damaged, they might end up with a big repair bill they didn’t bargain for.

Another risk is that the seller waits for you to do all the work, then sells the home for top dollar to another buyer.

If you’re interested in using sweat equity toward your down payment, talk to your real estate agent. They may be able to talk with the seller’s agent to find out whether the seller is open to that possibility and what assurances they might need before moving forward.

Alternatives to Freddie Mac Home Possible

If you do not qualify for a Freddie Mac Home Possible mortgage, there are other options, even if you are on a low income.

Fannie Mae HomeReady

Fannie Mae HomeReady loans are also conventional loans that allow you to qualify with as little as 3% down. These loans are also available to low- and moderate-income homebuyers who earn 80% or less of the area median income.

You can use gift funds or down payment assistance toward your down payment and closing costs on a Fannie Mae HomeReady loan.

Like Freddie Mac Home Possible, you can use roommate income to qualify for a Fannie Mae HomeReady loan. The roommate must have paid you rent for at least nine out of the past 12 months, and they must plan to live with you in your new property.

USDA loans

USDA loans, which are backed by the U.S. Department of Agriculture, are 0% down mortgages available to low- to moderate-income homebuyers.

As with Freddie Mac Home Possible, you will need to meet the income limits in your area to qualify for USDA. However, income limits are more lenient. You just have to make 115% or less of the area median income, compared to Home Possible’s limit of 80%.

The home you want to purchase must also be in a USDA-eligible area.

Check your USDA loan eligibility here.

VA loans

If you are an eligible veteran, active-duty servicemember, or qualifying surviving spouse, you may be eligible for a VA loan, backed by the U.S. Department of Veterans Affairs. VA loans have a 0% down option for borrowers who have full entitlement benefit available.

Those who have partial entitlement benefit available can still qualify for a VA loan, but they may have to put some money down and they will be subject to loan limits (a cap on how much your lender can approve you to borrow).

Learn more: Absolutely Everything to Know About the VA Home Loan in 2022

FHA loans

Another government-backed option, FHA loans allow you to buy a home with 3.5% down if you have a credit score of 580 or higher. You can use gift funds and down payment assistance toward your down payment and closing costs on an FHA loan.

See if you can buy a home with an FHA loan. Start here.

Renovation loans

If you’re interested in buying an older house or a fixer-upper that needs some work but Freddie Mac Home Possible’s sweat equity option will not work for you, there are low down payment renovation loans that allow you to purchase a home and pay for repairs with a single loan:

  • Freddie Mac CHOICERenovation: 3% down
  • Fannie Mae HomeStyle: 3% down 
  • FHA 203k: 3.5% down 
  • USDA renovation loan: 0% down 
  • VA renovation loan: 0% down

Learn more: Fixer-Upper Loans: How to Pay For That Home That Needs Some Extra Love

Freddie Mac Home Possible FAQs

Does Freddie Mac Home Possible have income limits?

Yes. You must make at or below 80% of the area median income where the property is located to qualify for Freddie Mac Home Possible. You can look up your area’s income limits with the Home Possible eligibility tool.

Is Home Possible Fannie or Freddie?

The Home Possible mortgage is offered by Freddie Mac. Fannie Mae offers a similar loan option, the Fannie Mae HomeReady program. Both are 3% down conventional loans available to low- to moderate-income homebuyers who earn 80% or less of the area median income based on property location. Freddie Mac Home Possible is unique in that it allows homebuyers to use sweat equity toward their down payment. 

Who qualifies for Freddie Mac Home Possible?

To qualify for a Freddie Mac Home Possible loan, you must earn 80% or less of your area median income. You must also meet the loan program and lender guidelines, including having a 620 or higher credit score and making a 3% down payment.

Funds for your down payment can come from gift funds, down payment assistance, unsecured personal loans, a Freddie Mac Affordable Second mortgage, and sweat equity.

The bottom line

The Freddie Mac Home Possible mortgage allows you to get creative in how you qualify for a home loan.

The options to use roommate income and sweat equity can make all the difference for deserving borrowers who are ready to buy their own homes.

Key Takeaways:

  • Qualify with as little as 3% down, as long as you earn at or less than the income limits in your area
  • You can use sweat equity to cover some or all of your down payment
  • Use gift funds, employer assistance, and down payment assistance toward your down payment as well

Further Reading

What’s the Minimum Credit Score For a Conventional Loan?

Conventional Loans vs. FHA: Which Mortgage is Better?

Conventional Loan Mortgage Rates: Are They Rising In 2021?