Freddie Mac Mortgage Guidelines On Conventional Loans
Freddie Mac Mortgage Guidelines On Conventional Loans
This BLOG On Freddie Mac Mortgage Guidelines On Conventional Loans Was Written By Michael Gracz National Sales Manager of Gustan Cho Associates
Freddie Mac updates.
We have all heard of Freddie Mac, but many Americans do not understand the purpose of Freddie Mac.
- Freddie Mac is The Federal Home Loan Mortgage Corporation (FHLMC)
- Freddie Mac is a private corporation backed by the federal government
- It is often referred to as Government Sponsored Enterprises (GSE)
- Freddie Mac buys mortgages and packages them into mortgage-backed securities (MBS)
- Banks and lenders will use funds from Freddie Mac to create mortgage loans for Americans
- When Freddie Mac resells the mortgage back Securities to investors on the secondary Market it allows investors to profit in the real estate sector
- Without organizations such as Freddie Mac Banks would not be allowed to give 30-year mortgage notes
- Lenders cannot afford to keep each mortgage on their books for 30 full years
How Does Secondary Mortgage Markets Work
Here is a quick rundown of how it works.
- Freddie Mac will buy mortgages from Banks and other lenders and create a mortgage-backed securities
- They will then sell shares of the mortgage back Securities to insurance companies, mutual funds, and many Pension funds
- Freddie Mac will then give the investors an agreed-upon guaranteed payment each month
- Ever since the mortgage crash the US Treasury backs this guaranteed payment
- More simple terms, you make your monthly mortgage payment, the bank will give the funds to Freddie Mac, Freddie then bundles your payments with the other payments in the MBS
- It then sells it on the secondary market to investors
- Keep in mind Freddie Mac does not sell every mortgage
- They will keep some to raise capital for themselves
- Freddie Mac is also responsible for setting guidelines for mortgage lending on conventional mortgages
- They have recently made a few updates to their requirements
Updates On Freddie Mac Mortgage Guidelines
What are the new updates?
Both Fannie Mae and Freddie Mac allows for Income Based Repayment (IBR) as long as it reports on all three credit bureaus. If borrowers are not on IBR Payment Plan and the student loans are deferred, the following applies:
We all know the mortgage industry is ever changing. Freddie Mac Mortgage Guidelines seem to change overnight. Many loan officers are not up to date with their knowledge. This is why we stress guideline education to all of our loan officers at Gustan Cho Associates.
There have recently been some big announcements from Freddie Mac.
Rate and Term Refinance update:
- The old rule on cash received at closing with a rate and term refinance was 2% of the loan amount or $2,000, whichever was less
- Meaning on a $150,000 refinance, the max cash back to borrower would be $2,000 even though 2% is $3,000
- Cash at closing is now the Greater of 1% or $2,000!
The new rule of 1% of loan amount as cash back or $2,000, whichever is more give the borrowers more cash back with the funding of a rate and term refinance.
- This helps many Americans whose loan amounts are above $200,000
- Let’s now use an example for a rate and term refinance and a new loan amount of $350,000
- You used to be capped at $2,000 maximum and now with the new rule, the borrower can get up to $3,500 back
- In today’s economy this will help most Americans
- Even if your loan amount is below $200,000, you can now get up to $2,000 back on a rate and term refinances
Freddie Mac Mortgage Guidelines On Student Loans
Freddie Mac update to Student Loans:
- Student loans seem to be a gray area and mortgage lending
- Part of this is due to many loan officers are not up-to-date with student loan payment guidelines
- Another reason is every type of loan has a different set of rules for student loan payments
- For instance, VA loans are different than FHA loans, which are then again different from conventional loans
- Within conventional lending, Fannie Mae and Freddie Mac have slightly different guidelines
- In this blog we will focus on the new update from Freddie Mac.
The new Freddie Mac Student Loan guidelines allow you to use the payment on the credit report.
- If there is not a payment on the credit report, you now only need to use .5% of the balance of student loan as your monthly payment
- NOTE: FANNIE MAE IS STILL 1%
- That can make the world of difference and help many Americans with high student loan debt qualify for conventional financing with Freddie Mac
Freddie Mac Mortgage Guidelines On Self Employed Borrowers
Self-Employed Borrower Update:
Freddie Mac has now changed the rules for borrowers who currently have a full-time primary job and run a self-employed business on the side.
- If you are losing money on your side business, you used to get hit with that loss against your overall debt to income ratio
- Recently Fannie Mae changed their guidelines on this
- Freddie Mac has now stepped up to the plate on this scenario
- As long as you have primary income from another source, you do not need to be hit with a Schedule C loss from your tax returns
- This is a huge step in the right direction for many Americans with a side business
After reading this if you have more questions please contact Mike Gracz directly on 630-659-7644 or text for faster response. Or email us at email@example.com. We offer many great programs through Freddie Mac such as HOMEONE, please see our HOMEONE BLOG for more details!