In this article
Key takeaways:
- With only 3% down and 97% financing, first-time homebuyers have a shot at affordable homeownership with the HomeOne loan program.
- HomeOne provides more flexibility than many low-cost loans because it has no income or geographic restrictions.
- HomeOne foregoes upfront mortgage insurance premiums and its attainable credit requirements make homeownership more inclusive and accessible.
- The HomeOne program compares favorably to other low-cost loan options. It does not have some of the other fees and restrictive criteria, making it a great option for first-time homebuyers.
The 2024 market share for first-time homebuyers fell to a historic low of 24% (from 32% in 2023), while the average home buyers’ age hit an all-time high of 56 years, according to the National Association of Realtors (NARS).® The requirements to buy a house can rule out many potential first-time homebuyers facing high home prices and interest rates. Financing options can be both overwhelming and discouraging. The HomeOne loan from Freddie Mac, an accessible solution with flexibility and low down payment conditions, offers first-time homebuyers hope and encouragement. With terms that permit financing of up to 97%, this loan can qualify a larger range of buyers, making homeownership possible for more people.
What is the HomeOne Loan?
The HomeOne conventional loan through Freddie Mac allows first-time homebuyers to make a downpayment of as little as 3%, a terrific opportunity for affordable financing. This inclusive program has fewer requirements to buy a house, no income or geographic restrictions, and credit score flexibility. Additionally, HomeOne foregoes the upfront mortgage insurance premiums common with Federal Housing Administration (FHA) loans. The criteria for qualifying for the loan are reasonable and easy to attain. The HomeOne loan covers a variety of properties, such as single-family homes, townhomes, and condominiums, as long as they will serve as the primary residence. Here are some core features of the loan:
- Low upfront cost: With 3% down, and 97% financing, first-time borrowers can secure a home loan for $9,000 on a home purchase of $300,000.
- No income limits: Many loans have an earnings threshold to qualify. The HomeOne loan does not.
- No mortgage insurance premium at closing: Without the additional expense of a mortgage insurance fee, buyers can save even more upfront than with other low-cost loans.
Why the HomeOne Loan is Ideal for First-time Homebuyers
In 2023, Freddie Mac purchased 132,000 loans through low-cost initiatives like HomeOne, enabling 375,000 people to buy homes for the first time. The HomeOne loan grants entry to homeownership for those who otherwise might not be able to afford it and may not qualify for other low-cost loan options, like U.S. Department of Veterans Affairs (VA) loans. In addition to low money down, the loan has generous credit score terms. A score of 620 can be enough to qualify. Moreover, borrowers whose loan-to-value (LTV) ratio meets 78% can discontinue private mortgage insurance (PMI) if it applies. The education program needed for the loan can provide useful information and guidance for individuals new to the process and the requirements to buy a house. The criteria for HomeOne loan eligibility are as follows:
- At least one borrower must be a first-time homebuyer. The HomeOne loan’s specifications define a first-time homebuyer as someone who has not owned a property in three years, so even those standards are liberal.
- All borrowers must live in the single-unit property and define it as the primary residence.
- At least one borrower must have a credit determined as usable by the Loan Product Advisor. There is no defined minimum score, but most loans require 620 or above.
- The borrower must put a minimum of 3% of the cost of the home down on the loan, financing a maximum of 97%.
- PMI is required for LTV ratios exceeding 95% (3-5% down) and applies until the LTV ratio reaches 78%.
- If both borrowers are first-time homebuyers they must complete a homeowner education course. Courses like the free CreditSmart curriculum from Freddie Mac or other mortgage insurance company program offerings can fulfill the education requirement.
HomeOne Vs. Other Loan Options
The HomeOne loan is designed for first-time homebuyers who need financial flexibility, but it may not be the best loan for everyone. Research each low-cost loan’s requirements to buy a house and compare them to make an informed decision. Here is how HomeOne stacks up against other similar loans.
HomeOne and FHA Loans:
- Both loans require a minimal downpayment. The HomeOne loan comes in slightly lower than FHA, 3% vs. 3.5%.
- Concerning mortgage insurance, HomeOne wins again with no upfront premium. PMI applies only to LTV ratios above 22% or 78% of the home’s value, and the borrower can cancel it once they have met that threshold. FHA loans carry both the upfront mortgage insurance fee of 1.75% of the loan amount, and ongoing insurance costs.
- HomeOne applies exclusively to first-time homebuyers and at least one borrower must fit that profile. FHA does not have this requirement.
- FHA loans can cover 1-4 unit properties, whereas HomeOne covers a single-unit residence, whether it be a single-family home, a townhome, or a condominium.
HomeOne and Home Possible® Loans:
- Home Possible loans cater to very low- to low-income borrowers, and like the HomeOne loan, they require a minimum of 3% down.
- The HomeOne loan stipulates that all borrowers must occupy the residence and designate it as a primary residence. Home Possible extends to co-borrowers who do not live in the home, thereby lowering the qualifying threshold.
- The Home Possible loan permits borrowers to have another financed property, whereas HomeOne rules that only first-time homebuyers who have not owned another property within three years are eligible.
- The Home Possible program has income and geographic restrictions that the HomeOne loan does not.
Various low-cost loan options, like FHA, HomeOne, Home Possible, VA, and USDA exist to help potential homebuyers overcome the financial challenges of purchasing a home. Each targets a different persona, so most have income and/or geographic limitations, or requirements that set them apart from one another. HomeOne has no income or geographic restrictions, making it ideal for first-time homebuyers anywhere.
Check all your down payment options. Start Here! (Dec 21st, 2024)How to Get Started with HomeOne
Potential homebuyers looking to take advantage of the HomeOne loan program need only follow a few simple, but important steps.
- Use a mortgage calculator: Many financial institutions offer online tools like mortgage calculators on their websites to help first-time homebuyers understand how much mortgage they can afford and estimate monthly payments. This key step can shape future discussions about loan options and eligibility.
- Find a lender: First and foremost, first-time homebuyers must understand that Freddie Mac is not a mortgage lender. Freddie Mac is a federal program that sponsors the HomeOne loan program and purchases packaged mortgage loans from financial institutions. Not all mortgage lenders provide financing for Freddie Mac programs like the HomeOne loan, but many, like Moreira Team, do. Once homebuyers find an appropriate lender they should contact the financial institution for guidance about their loan eligibility.
- Gather documentation: Applicants should compile paystubs, bank statements, W-2s, and a credit report to begin the process.
- Complete education requirement: If the sole loan applicant is a first-time homebuyer or the same applies to all parties who will be on the loan, an education requirement applies. At least one borrower(s) must complete the curriculum by the mortgage’s note date, which is the same as the closing date when the loan agreement begins.
The HomeOne loan eliminates many barriers that have contributed to the decrease and delay of first-time homebuyers, making an easier path to homeownership with fewer requirements to buy a house. With affordable and flexible terms, the HomeOne loan is an ideal option for first-time homebuyers. Ready to explore the benefits of the HomeOne loan? Moreira Team is here to help. Learn more about how this program makes buying a home more accessible for first-time buyers. Contact Moreira Team today.