Freddie Mac Guidelines: Ineligible HeritageOne Mortgages

What HeritageOne Mortgages Are and Why These Restrictions Exist

HeritageOne mortgages are a specific Fannie Mae loan product designed for first-time homebuyers and buyers in underserved communities. The program offers reduced mortgage insurance and flexible underwriting, but comes with strict eligibility requirements that exclude many common loan types and scenarios.

These restrictions exist because HeritageOne targets a specific borrower profile. Fannie Mae designed the program to help creditworthy buyers who might struggle with traditional financing due to limited down payment funds or slightly elevated debt-to-income ratios. The ineligible loan types either serve different purposes or carry risk profiles that don't align with HeritageOne's mission.

Loan Types That Cannot Use HeritageOne

Several entire categories of mortgages are automatically disqualified from HeritageOne eligibility.

Adjustable-rate mortgages cannot use HeritageOne terms. If you want the program's benefits, you must choose a fixed-rate mortgage. This means your interest rate stays the same for the entire loan term, whether that's 15, 20, or 30 years.

Cash-out refinances are also excluded. You can only use HeritageOne for purchase transactions or rate-and-term refinances where you're not taking cash out beyond closing costs and prepaid items. If you want to tap your home's equity for debt consolidation or home improvements, you'll need a different loan program.

Government-backed loans like FHA, VA, and USDA mortgages cannot be HeritageOne loans. These programs have their own guidelines and benefits that don't overlap with HeritageOne's structure.

Property Types and Special Situations

HeritageOne financing is limited to primary residences only. Investment properties and second homes are explicitly excluded from the program.

Say you're buying a duplex and plan to live in one unit while renting out the other. Even though you'll occupy the property as your primary residence, the investment component makes it ineligible for HeritageOne. You'll need conventional financing instead.

Vacation homes and second homes also cannot use HeritageOne, regardless of how you plan to use the property. The program is designed specifically for primary residence purchases.

Cooperative share loans, which are common in some urban markets like New York City, are not eligible. If you're buying a co-op apartment, you'll need a different loan product.

Conflicts with Other Fannie Mae Programs

HeritageOne cannot be combined with other special Fannie Mae loan programs. This creates some important limitations for borrowers who might otherwise qualify for multiple programs.

HomeOne mortgages, which also target first-time buyers, cannot use HeritageOne terms. You must choose one program or the other based on which offers better terms for your situation.

Home Possible mortgages, designed for low-to-moderate income borrowers, are similarly incompatible with HeritageOne. Both programs offer reduced mortgage insurance, but they cannot be stacked together.

If you're eligible for both HeritageOne and Home Possible, your lender will need to run the numbers to determine which program saves you more money over the life of the loan.

Credit and Underwriting Restrictions

Manually underwritten loans where no borrower has a usable credit score cannot use HeritageOne. This affects borrowers who lack traditional credit histories or have credit reports that don't generate FICO scores.

For example, if you're an immigrant with no U.S. credit history, or if you've avoided credit cards and loans to the point where you don't have scoreable credit files, HeritageOne won't be an option if your loan requires manual underwriting.

The program requires automated underwriting approval through Fannie Mae's Desktop Underwriter system, which relies on credit scores to assess risk.

Refinance Limitations

Several types of refinance transactions are excluded from HeritageOne eligibility.

Freddie Mac Enhanced Relief Refinance mortgages cannot be converted to HeritageOne loans. These are specific refinance products for underwater borrowers, and they serve a different purpose than HeritageOne's first-time buyer focus.

Refi Possible mortgages, which are Fannie Mae's refinance program for borrowers with limited equity, also cannot use HeritageOne terms. Again, you must choose one program or the other.

Complex Loan Structures

Mortgages with associated Home Equity Lines of Credit (HELOCs) are not eligible for HeritageOne. This restriction applies even if the HELOC is with a different lender.

If you're planning to get a HELOC shortly after closing on your HeritageOne mortgage, this could potentially create issues. The restriction appears to apply to mortgages that are packaged or sold together with HELOCs.

Mortgages with capitalized balances, as described in Fannie Mae's Chapter 4403, are also excluded. This typically involves situations where certain costs or fees are added to the loan balance rather than paid at closing.

Geographic and Special Property Restrictions

Properties on Hawaiian Home Lands cannot use HeritageOne financing. These are trust lands set aside for Native Hawaiian homesteading, and they have special legal and financing considerations that make them incompatible with the HeritageOne program.

Community Land Trust properties are also ineligible. These are affordable housing arrangements where a nonprofit owns the land while the homeowner owns the structure. The complex ownership structure doesn't fit HeritageOne's requirements.

High-Balance Loan Limitations

Super conforming mortgages, which are high-balance loans in expensive areas that exceed standard conforming limits but stay within special higher limits, cannot use HeritageOne terms. These loans are described in Fannie Mae's Chapter 4603.

For 2024, standard conforming loan limits are $766,550 in most areas, with higher limits in expensive markets reaching up to $1,149,825. If your loan amount falls in the super conforming range, you'll need different financing.

State-Specific Restrictions

Texas Equity Section 50(a)(6) mortgages are specifically excluded from HeritageOne eligibility. These are home equity loans governed by Texas constitutional provisions that have unique legal requirements.

If you're refinancing or getting a home equity loan in Texas under these specific provisions, HeritageOne won't be available regardless of other eligibility factors.

References

For the official guidelines, see 4504.4: Ineligible HeritageOne® Mortgages in the Fannie Mae Selling Guide.