Understanding Home Possible Income Limits
The Home Possible program targets moderate-income borrowers. Your qualifying income must stay at or below 80% of the Area Median Income (AMI) for your specific location.
This income limit applies to all borrowers on the loan combined. If you're married and both spouses are on the mortgage, both incomes count toward the 80% threshold. The same rule applies if you have a non-occupying co-borrower like a parent or relative helping you qualify.
Say you're buying a home in Denver where the AMI is $95,000. Your household income limit would be $76,000 (80% of $95,000). If you earn $45,000 and your spouse earns $30,000, your combined $75,000 income qualifies. But if your spouse gets a raise that pushes your household income to $77,000, you still qualify since you're under the $76,000 limit.
The lender uses the same income they calculated to qualify you for the mortgage. They don't add back income they couldn't count for qualification purposes. If you have rental income but the property has been vacant, that rental income won't count toward qualification or the income limit calculation.
How Lenders Verify Income Eligibility
For loans processed through Fannie Mae's automated underwriting system (Loan Product Advisor), the system automatically checks your income eligibility. You won't need to do anything extra beyond providing your standard income documentation.
For manually underwritten loans, your lender must use Fannie Mae's Home Possible Income & Property Eligibility tool. This online tool requires your property address and household income to determine eligibility. Lenders cannot use HUD's published AMI data or other income limit sources.
Your lender will need the same income documentation required for any mortgage: recent pay stubs, tax returns, W-2s, and bank statements. The key difference is they'll also verify that your qualifying income falls within the program limits for your specific area.
Primary Residence Requirement
At least one borrower on the loan must occupy the property as their primary residence. This means you cannot use Home Possible for investment properties or second homes.
The occupying borrower must intend to move into the property within 60 days of closing and live there for at least one year. Standard occupancy verification applies, including an occupancy certification at closing.
If you're buying with a non-occupying co-borrower, that person doesn't need to live in the home. A parent helping their adult child qualify, for example, can be on the loan without moving in. But the child must occupy the property as their primary residence.
Rules for Non-Occupying Co-Borrowers
Non-occupying co-borrowers face additional restrictions. The property must be a single-family home, townhouse, or condominium. You cannot use a non-occupying co-borrower on a 2-4 unit property.
Loan-to-value limits become stricter with non-occupying borrowers. For automated underwriting approvals, the maximum LTV drops to 95%. For manual underwriting, it drops to 90%. These limits apply to the total loan amount if you're using multiple mortgages.
The occupying borrower must also meet tighter debt-to-income ratios for manually underwritten loans. Their housing payment cannot exceed 35% of their monthly income, and their total debt payments cannot exceed 43%. These ratios apply only to the occupying borrower's income, not the combined income of both borrowers.
Property Ownership Restrictions
The occupying borrower cannot own more than two financed residential properties total, including the new home. This includes any property with an existing mortgage, home equity loan, or HELOC.
Say you currently own a home with a mortgage and want to buy a second property using Home Possible. That's allowed since you'd own two financed properties total. But if you already own two homes with mortgages, you cannot use Home Possible for a third property.
The restriction applies only to financed properties. If you own a rental property free and clear with no mortgage, it doesn't count toward the two-property limit. Only properties with existing debt count.
This rule applies as of the closing date. If you plan to sell your current home after closing on the new one, you could temporarily own three financed properties, which would violate the guidelines.
Why These Rules Exist
The income limits ensure Home Possible serves its intended moderate-income market. Fannie Mae designed the program to help borrowers who earn too much for other assistance programs but still need help with down payments and mortgage insurance costs.
The occupancy requirement prevents investors from using the program's benefits. Home Possible offers reduced mortgage insurance and down payment flexibility intended for owner-occupants, not rental property investors.
Property ownership limits prevent wealthy borrowers from using Home Possible benefits on investment properties. Someone who already owns multiple financed properties likely has sufficient assets and income to use conventional financing without special assistance.
Common Issues That Cause Problems
Income calculations can be tricky in high-cost areas. A borrower earning $85,000 might assume they're too high-income for assistance programs, but in expensive markets, 80% of AMI could be $120,000 or higher.
Timing issues arise with property sales. If you're selling your current home to buy a new one, the timing must work correctly to avoid temporarily exceeding the two-property limit. Your lender will need to coordinate the transactions or require the sale to close first.
Self-employed borrowers face additional complexity. The lender must use the same income calculation methods for both mortgage qualification and Home Possible eligibility. If your business income varies significantly, this could affect both your ability to qualify and your program eligibility.
Non-occupying co-borrower situations require careful planning. The stricter LTV limits and debt-to-income ratios for the occupying borrower can make qualification more challenging, even with the additional income from the co-borrower.
References
For the official guidelines, see 4501.4: Eligible Borrowers for Home Possible® Mortgages in the Fannie Mae Selling Guide.
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Original Freddie Mac Guideline Text
This section contains requirements related to:
(a)
Income limits
The Borrower’s qualifying income, converted to an annual basis, must not exceed 80% of the Area Median Income for the location of the Mortgaged Premises.
To determine whether the Borrower’s income exceeds the income limits, the Seller must rely on the income used to qualify the Borrower.
®
Mortgages, Loan Product Advisor will determine the income eligibility of the Mortgage
For Non-Loan Product Advisor Mortgages, the Seller must use the
®
(opens in new window)
. The Seller may not use other published Area Median Income versions (such as those posted on
https://www.huduser.gov/portal/home.html
(opens in new window)
) to determine Mortgage or product eligibility.
(b)
(i)
Occupancy requirement
At least one Borrower must occupy the property secured by a Home Possible Mortgage as their Primary Residence.
(ii)
Requirements for Mortgages with non-occupying Borrowers
Non-occupying Borrowers are permitted, provided that:
The Mortgage is secured by a 1-unit property
The loan-to-value (LTV), total LTV (TLTV), and Home Equity Line of Credit (HELOC) TLTV ratios must not exceed:
95% for Loan Product Advisor Accept Mortgages, except that for fixed-rate Mortgages with Affordable Seconds
®
, the TLTV ratio must not exceed 105%
90% for Manually Underwritten Mortgages, except that for fixed-rate Mortgages with Affordable Seconds, the TLTV ratio must not exceed 105%
For Manually Underwritten Mortgages, the occupant Borrower’s:
Monthly housing expense-to-income ratio should not exceed 35%; and
Monthly debt payment-to-income (DTI) ratio must not exceed 43%
Note: Funds used to qualify for the Mortgage may come from the occupying and/or the non-occupying Borrower.
(c)
Ownership of other property
The occupying Borrower(s) must not have an ownership interest in more than two financed residential properties, including the subject property, as of the Note Date, or the Effective Date of Permanent Financing for Construction to Permanent Mortgages and Renovation Mortgages.
