The HomeOne loan makes home buying easier
Saving for a down payment is one of the biggest hurdles for first-time home buyers.
Fortunately, there are a number of low- and even no-down-payment loan options. The Freddie Mac HomeOne loan is such a program.
HomeOne lets you buy a house with just 3% down. And it has looser eligibility guidelines than many programs — making this an attractive option for first-time home buyers.
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What is the Freddie Mac HomeOne loan?
Introduced in 2018, Freddie Mac’s HomeOne mortgage loan is designed to make financing more accessible for prospective home buyers as well as homeowners looking to refinance.
Thanks to its lenient underwriting guidelines, the HomeOne loan can be a great choice for low-income or moderate-income borrowers.
“This loan is primarily aimed at first-time purchasers who do not have a lot of disposable income but want to enter the market with a low down payment,” says Leonard Ang, CEO of iPropertyManagement.
“This loan is primarily aimed at first-time purchasers who do not have a lot of disposable income but want to enter the market with a low down payment.”
It’s important to note that Freddie Mac is not a mortgage lender.
Rather, it’s a government-sponsored agency created to help middle-and lower-income Americans buy homes.
“Freddie Mac does not provide loans like HomeOne to buyers directly. Instead, Freddie Mac purchases packaged mortgages from banks and other lenders who provide house loans to borrowers,” notes Imani Francies, a mortgage expert with Loans.org.
That means you can get a HomeOne mortgage from just about any mortgage lender offering Freddie Mac programs (which most do). And you have the opportunity to shop around for your lowest interest rate.
About the HomeOne mortgage
One of the main benefits of a HomeOne mortgage loan is that it lets you buy real estate with as little as 3% down. That’s a huge advantage compared to other conventional loan programs the might require 5, 10, or even 20% down.
Another perk is that there are no geographic limitations on where you can purchase a home using a HomeOne loan. There are no income limits attached to this financing, either.
- You are allowed to purchase one-unit properties with a Freddie Mac HomeOne loan
- Eligible porperty types include a single-family home, townhome, or condominium
- The approval process is less stringent than for other loan types
- Rent you receive from a roommate or border can count toward up to 30% of your income used to qualify for this loan
However, by opting for a HomeOne mortgage, will have to pay private mortgage insurance if your loan-to-value (LTV) ratio is greater than 95%, according to Freddie Mac. That means PMI is required any time you put less than 5% down.
Also, if you choose to refinance via the HomeOne loan program, you are not allowed to take cash out.
“Freddie Mac makes this program available through participating lenders, such as banks, mortgage lenders, mortgage brokers, and credit unions,” Francies adds.
HomeOne eligibility requirements
To qualify for a HomeOne loan, you must meet the following criteria:
- At least one borrower must be a first-time homebuyer if this loan is for a home purchase
- The property must be a one-unit primary residence (which can include a single-family home, townhome, or condo)
- You need to put down at least 3 percent of the purchase price
- Your loan amount must be within conforming loan limits
- If all borrowers are first-time homebuyers, at least one borrower must complete a homeownership education program before the mortgage’s note date
- All borrowers must occupy the mortgaged premises as a primary residence
Note that the definition of “first-time home buyer” isn’t as strict as it sounds. Anyone can qualify as a first-time buyer as long as they haven’t owned a home in the past three years.
So even if you owned a home previously, but have been renting for the past few years, you might qualify for your next home purchase via the Freddie Mac HomeOne program.
HomeOne income limits
One of the best features of Freddie Mac’s HomeOne loan is that there are no income caps to qualify. That makes the program more accessible than some other 3-percent-down loans.
“There are no income limits, but at least one borrower needs to have a good credit score,” says Lyle Solomon, principal attorney at Oak View Law Group.
Also be aware that the maximum debt-to-income (DTI) ratio for a HomeOne loan is 45%, the maximum LTV is 97%, and the minimum credit score many lenders look for is typically 620.
Freddie Mac HomeOne versus Home Possible
Freddie Mac backs another loan program called Home Possible. Like HomeOne, it offers loans for as little as 3% down on single-family homes.
However, Home Possible is only available to anyone who makes less than 80% of the average monthly income for the ZIP code they will be buying in. A minimum FICO credit score of 660 is usually required, and your DTI cannot exceed 43 to 45 percent.
That means it’s a little easier to qualify for a HomeOne loan than a HomePossible loan.
In addition, with a Home Possible mortgage, you can qualify with the income of a parent or other individual who agrees to co-sign the loan with you. But at least one occupying borrower must participate in a homeownership education program if you are buying a home for which all occupying borrowers will be first-time buyers.
Alternatives to the HomeOne mortgage
Not everyone will qualify for a HomeOne loan. And even if you do qualify, a different loan program might be better for your situation. So make sure you explore all your options.
If you’re looking for a low-down-payment mortgage, a few great alternatives to the Freddie Mac HomeOne program include:
- Fannie Mae Home Ready loan — Requires 3% down, 620-680 FICO credit score minimum, 50% DTI maximum, 97% LTV maximum, annual income can’t exceed 100% of the area median income (AMI)
- Conventional 97 loan (offered by Fannie Mae and Freddie Mac) — Requires 3% down, 620-660 FICO credit score minimum, 50% DTI maximum, 97% LTV ratio maximum
- FHA loan — Requires 3.5% down, 580 FICO credit score minimum, 43% DTI ratio maximum in most cases
- USDA loan — Requires 640 FICO credit score minimum, 41% DTI maximum, annual income can’t exceed 115% of your area’s median income, must buy in eligible rural areas.
- VA Home Loan — Requires 0% down, 580-660 FICO credit score minimum, 41% DTI maximum, must be a qualifying veteran, active-duty service member, or spouse of a veteran
Not sure which loan is best for you? Your loan officer can help you explore your options and decide.
Freddie Mac HomeOne FAQ
The HomeOne mortgage loan, geared toward first-time buyers and homeowners seeking to refinance, allows you to purchase a home for as little as 3 percent down. There are no income limits or geographic limitations on where you can buy a property, which can be a single-family residence, condo, or townhome. But you will pay mortgage insurance if your LTV ratio is greater than 95 percent. And no cash-out refinances are allowed.
To be eligible: At least one borrower must be a first-time buyer if this is a purchase loan; the home must be a one-unit primary residence; at least 3 percent down is needed; if all borrowers are first-time purchasers, at least one borrower must complete a homebuyer education program; all borrowers must occupy the home as a primary residence; and you are not allowed to have owned property in the three years prior to your loan application.
Experts say HomeOne mortgage interest rates are typically lower than rates for traditional mortgage loans. But keep in mind, the rate you are quoted will depend on many factors, including your credit score, employment history, and more.
Freddie Mac does not provide loans to borrowers directly. Rather, it buys packaged mortgages from banks and other lenders who offer mortgage loans to borrowers. Freddie Mac offers the HomeOne loan program through participating banks, mortgage lenders, mortgage brokers, and credit unions. Loans that meet Freddie Mac’s standards are classified as conforming loans.
The maximum debt-to-income (DTI) ratio allowed for the HomeOne loan is 45 percent. That means all your monthly debt payments, including your mortgage, can’t exceed 45 percent of your pre-tax income.
While there is no defined minimum credit score required to qualify for a HomeOne loan, most lenders require a score of 620 or higher.
At least one borrower must be a first-time homebuyer if this loan is for a home purchase. Also, if all borrowers are first-time homebuyers, at least one borrower must complete a homeownership education program.
Yes, refinancing is allowed under the HomeOne mortgage loan, although cash-out refinances are not permitted.
The maximum loan-to-value (LTV) ratio for a HomeOne mortgage loan is 97 percent, which means you’ll need to put at least 3 percent down. However, if you utilize Affordable Seconds financing for your down payment and closing costs, your LTV can be as high as 105 percent.
Yes, you can use down payment assistance, such as a gift, grant, or Affordable Seconds loan, toward a HomeOne loan.