guides – Purchase, refinance, renovation, reverse, Downpayment assistance, VA, FHA

More Tips and Tricks on the LoansByJoanna Guide

Coming soon: Seller Buydown (For Sellers)

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When you qualify for a home loan, you’re actually qualifying for the monthly payments

We know that for a home buyer, nothing takes priority quite like having an affordable mortgage payment. The price you’ll be approved for depends entirely on both your down payment and the maximum payment for which you qualify. And the most significant factor in determining what that payment will be is your interest rate.

For those buyers who opt to use an interest rate reduction mortgage, your real estate agent will negotiate with the seller to accept a fair price if they will give you credit to permanently reduce, or buydown, your interest rate.

Just a reduction of 0.25% in your interest rate could mean tens of thousands of dollars of interest that you will save over the term of your home loan. And this, of course, can mean the difference between affording your dream home and going with option B.

At the end of the day, this is a win-win situation for both the buyer and the seller of a home.

Using this credit (also known as a seller’s concession) to permanently lower your interest rate will lead to a reduction in your mortgage payment, allowing you to afford a higher sales price while keeping your payments right where you needed them to be all along.

The seller benefits as much as the buyer in that the seller gets the offer they wanted, and your below-market interest rate means a lower total payment— even though you offered a fair purchase price at market value.

You may be thinking, “Why don’t I just ask the seller to reduce the price of the home?”

That’s a great question, and most buyers are going to default to assuming this is the way to go. But using an interest rate reduction mortgage means your offer will stand out from the competition. A higher offer gives you a higher chance of sealing the deal.

Because it’s been established you aren’t trying to take any precious money out of the seller’s pocket (by having to make a lower offer), your far more desirable offer will inevitably stand out from all of the other buyers trying to get the lowest price possible.

While a desperate seller may take a low offer, most sellers are going to take the offer that will allow them to make the most money from the sale. Period.

If your offer keeps your payment where you want it to be while the seller also gets what they want, then everybody wins.

A successful negotiation is when all parties feel like they got the best deal. You get your payment. The seller receives their money. Everybody wins when everybody wins.

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More Tips and Tricks on the LoansByJoanna Guide

Coming soon: Seller Buydown (For Sellers)

What is a Home Possible Mortgage?

Home Possible is a Freddie Mac mortgage program which allows first-time homebuyers with moderate incomes low down payment mortgage options. These programs only require 3-5% as the minimum down payment and features private mortgage insurance (PMI) that can be canceled once your home equity reaches 20%.

How can Home Possible help me?

The Home Possible and the Home Possible advantage programs are geared toward first-time homebuyers with limited funds available for down payments, but meet the rest of the lending criteria. The purpose of both programs is to finance or refinance the purchases of primary residences, 2-4 unit owner-occupied homes, and eligible manufactured properties. Home Possible programs, with backing from Freddie Mac, are able to offer reduced mortgage insurance rates and premiums, more flexible credit terms, and refinancing options for existing homeowners.

What are its Main Advantages of Each HP Program?

Home Possible

Home Possible Advantage

Income Limits: The borrower’s annual income cannot exceed 100% of the area median income limits (or higher percentage in designated high-cost areas). No income limits apply if the property is in an underserved area.
Eligible Property: A one- to four-unit primary residence or a manufactured home that meets the guidelines.
Eligible Mortgages: First-lien, fully amortizing mortgages; fixed rate and adjustable rate loans are allowed. The maturity must not exceed 30 years.
LTV and DTI Ratios: Max 95% LTV, DTI Determined by Loan Product Advisor or 45% if manually underwritten.

Income Limits: Loan Product Advisor is used to determine whether the borrower’s income exceeds the product advisor limits.
Eligible Property: A 1-unit primary residence. Manufactured Homes not permitted
Eligible Mortgages: First-lien, fully amortizing mortgages; fixed rate loans only. Loan term cannot exceed 30 years.
LTV and DTI Ratios: Max 97% LTV, DTI determined by Loan Product Advisor or 43% if manually underwritten

Table source: http://www.valuepenguin.com

Commonalities:

Borrowers must occupy the property as their primary residence.
Borrowers can not have an ownership interest in other properties.
Mortgage insurance rates and premiums match in both programs.
Mortgage insurance can be canceled after loan balance drops below 80% of the home’s appraised value.
Homeownership education is required for at least one qualifying borrower if all borrowers are first-time homebuyers.

Home Possible Loans Compared to Other loans?

Home Possible vs. FHA Loans

Although each program offers reduced mortgage insurance rates and premiums, which reduces your overall housing expense — with HP loan programs, the mortgage insurance can be canceled once you reach a 78% to 80% loan-to-value ratio. This avoids the expense of refinancing just to eliminate mortgage insurance in the future. In addition, Freddie Mac mortgages aren’t subject to Federal Housing Administation (FHA) county loan limits, which could restrict your purchase options.

Home Possible vs. VA Loans

Unlike loans from the Department of Veterans Affairs (VA), there’s no funding fee on Home Possible loans. Having fewer upfront costs keeps initial loan balances lower, requires lower monthly payments and less interest over the loan term.

Freddie Mac Home Possible vs. Conventional Loans

Home Possible offers more flexible credit terms than most conventional loans and accepts scenarios on a case-by-case basis which increases the chances that your mortgage application will be approved. HP even allows borrowers without credit scores to qualify based on acceptable automated underwriting results and payment references.

**How Do I Qualify for a Freddie Mac Home Possible Mortgage?**

You must meet the debt-to-income ratio requirements for the program. Typically, this means that a maximum of 45% of your gross income goes toward your debts.
Your income must fall within the stated guidelines, based on the location of the home. If you aren’t sure, use the eligibility tool on the Freddie Mac website.
You must also be considered a first-time homebuyer. This doesn’t mean that you’re excluded if you’ve owned a home in the past. There are exceptions for situations like inheriting a stake in a property or acting as a co-signer on a mortgage loan, or if you haven’t been on the title for another property within three years of applying to Home Possible.
You must complete an approved homebuyer education course. Courses are available online and in-person, and provides valuable information.

**How Do I Apply for a Freddie Mac Home Possible Mortgage?**

Select a lender who offers Home Possible mortgage products.
Have the lender calculate your income based on Freddie Mac guidelines by providing the lender with some supporting documentation (like pay stubs, W-2 forms, and bank statements). Going through the preapproval process before home shopping will give you peace of mind.
Once you know how your income will be considered, work with a real estate agent to identify geographic areas you’d be interested in and confirm that you meet the maximum income requirements by using the eligibility tool.
Like conventional mortgages, when you have an offer accepted, your income, assets and credit will be reviewed and confirmed, and the property will be appraised to determine its value.

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Seller Buydown (For Buyers)