Down Payment and Closing Costs for a Home Possible Loan

Down Payment and Closing Costs Overview

Home Possible is an affordable conventional mortgage from Freddie Mac, requiring a minimum 3% down payment. Cash at closing can come from the buyer's own fund, or via gift funds, housing grants, down payment assistance programs, or seller-paid credits.

Minimum Down Payment Requirement

The minimum down payment for a Home Possible mortgage is 3% of the home's purchase price. This applies to most property types, including single-family homes, condos, townhomes, and certain manufactured homes.

Here are some example down payment amounts:

• $150,000 purchase price = $4,500 down
• $250,000 purchase price = $7,500 down
• $350,000 purchase price = $10,500 down

Borrowers can put down more than 3% if they want to. Larger down payments reduce the loan size and lower monthly PMI costs. There are no restrictions on down payment size. Home Possible can be used with 20 percent or more, for example.

Note that certain Home Possible scenarios, such as manufactured homes or manually underwritten loans, may have different maximum loan-to-value (LTV) ratios.

Typical Closing Costs

Home Possible is a conventional mortgage loan. In 2024, closing costs on conventional loans averaged 1.54% of the loan amount — much lower than closing costs for a typical USDA or FHA loan, which can range up to 5%.

Typical closing costs include:

• Lender origination or underwriting fees
• Appraisal charges
• Title insurance and settlement services
• Recording fees
• Prepaid property taxes
• Prepaid homeowners insurance

Closing costs vary by lender and every lender sets their own fees. Be sure to ask for a loan estimate when shopping for your mortgage. Consumers who talk to more than one lender are likely to save money.

Conventional Mortgage Closing Costs by Year

Using Gift Funds

The Home Possible programs let home buyers use cash gifts for some or all of their down payment and closing costs. Gifts must come from an acceptable source and cannot require repayment because gifts that require repayment are not gifts — they're loans.

Eligible sources for gift funds include:

• Family members
• Fiancé(e) or domestic partner
• Employer
• Approved nonprofit or community organization

Ineligible gift fund sources include:

• The home seller
• The builder or developer
• The real estate agent or broker

Gift Fund Examples for Home Possible

If you’re unsure whether a donor is allowed, confirm with your lender before accepting funds.

Using Affordable Seconds®

An Affordable Second® can remove the biggest barrier to homeownership by covering your required 3% down payment and sometimes your closing costs. Affordable Second® is a type of second mortgage from sources such as:

• State or local housing agencies
• Regional Federal Home Loan Banks
• Approved nonprofit housing organizations
• Employers through Employee Assisted Housing programs

With an Affordable Second®, your combined loan-to-value can be as high as 105%, which means you bring $0 to your closing.

How to Ask About Affordable Second®

An Affordable Second® is often offered locally, so start by asking your lender or state housing agency if you qualify. You can also ask your employer or local nonprofits if they offer or sponsor approved mortgage programs.

Key questions to ask:

• How much does the Affordable Second® cover?
• Is it a loan, grant, or deferred-payment option?
• Can the program be combined with Home Possible?

Documentation for Gift Funds and Assistance

Mortgages with gift funds are high-risk for fraud, so lenders are diligent about making sure cash gifts are legitimate and not loans in disguise.

Typical documentation for a cash gift includes:

• A gift letter from the donor stating the amount, relationship, and no-repayment requirement
• Proof of transfer from donor to borrower or closing agent
• Donor’s bank statement showing funds were available
• Buyer’s bank statement confirming receipt of funds
• Closing disclosure showing the funds used at settlement

If you have questions about whether your cash gift for down payment can be accepted, ask your lender before receiving the gift.

Ways to Reduce Your Cash to Close

Home Possible borrowers can lower upfront costs with seller credits, down payment assistance, and Affordable Seconds.

Seller Credits

With Home Possible, home sellers can contribute up to 3% of their home's sale price toward the buyer's closing costs and prepaid expenses. The credit is applied at closing, directly to the bottom line.

Seller credits can only be used for costs tied to the purchase. They may not be used for a down payment, cash back at closing, or repairs not required by the lender as part of the mortgage.

Eligible vs. Ineligible Seller Credit Usage

Down Payment Assistance

Many states, cities, and nonprofits offer grants or low-interest loans for down payment and closing costs. Home Possible allows buyers to use DPA programs so long as they meet income and property eligibility rules.

Key Takeaway

Home Possible makes homeownership more accessible with a 3% down payment and flexible funding options, including gift funds, Affordable Seconds, seller credits, and down payment assistance. With careful planning, some borrowers can cover all upfront costs without using their own savings.

See our Home Possible Complete Guide for all program details.