Gustan Cho The Mortgage Expert,
Publish On: April 4, 2024
This guide covers Freddie Mac mortgage guidelines on conventional loans. We will also go over the recent Freddie Mac updates on conventional loans. 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 Enterprise (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.
Banks would not be allowed to give 30-year mortgage notes without organizations such as Freddie Mac. Lenders cannot afford to keep each mortgage on their books for 30 years. In this article, we will discuss and cover Freddie Mac mortgage guidelines on Conventional loans.
What Is Freddie Mac?
Congress created Freddie Mac 1970 as a government-sponsored enterprise (GSE) to support the U.S. housing market. Freddie Mac’s mission is to buy mortgages from lenders and package them into securities sold to investors, providing liquidity, stability, and affordability to the mortgage market.
This process helps lenders have more money to lend to borrowers, ultimately lowering mortgage rates and making homeownership more accessible.
Freddie Mac does not directly make loans to borrowers. Instead, they collaborate with lenders, servicers, community organizations, housing finance agencies, and other partners to provide a range of mortgage products and programs that cater to the diverse needs of borrowers and renters. Additionally, Freddie Mac conducts research and analysis on the housing market and offers education and resources to consumers and industry professionals. Speak With Our expert to get a Freddie Mac Loans
Is Freddie Mac Considered a Conventional Loan?
The FHLMC, or Freddie Mac, operates as a government-sponsored entity in the secondary mortgage market. Its primary function is to purchase loans from mortgage lenders, thereby increasing liquidity in the mortgage market. It does not, however, provide loans directly to consumers.
Freddie Mac primarily deals with conventional loans that are not insured or guaranteed by the government (such as FHA or VA loans). Conventional loans typically follow the guidelines set by Fannie Mae and Freddie Mac, which include requirements regarding credit score, down payment, and debt-to-income ratio.
Although Freddie Mac doesn’t directly provide loans to individuals, it plays a crucial part in the traditional mortgage market by acquiring these loans from lenders, consolidating them into mortgage-backed securities, and then selling them to investors.
Freddie Mac Mortgage Guidelines
If you are looking for a mortgage, you may have heard of Freddie Mac. But who is Freddie Mac, and what do they do? Freddie Mac is committed to making homes possible for millions of Americans by supporting the U.S. housing market. If you are looking for a mortgage, consider Freddie Mac as your partner in homeownership.
NOTE: FANNIE MAE HAS NOW CHANGED TO 0,50%. That can make a difference and help many Americans with high student loan debt qualify for conventional financing with Freddie Mac. In the following paragraphs, we will focus on the new update from Freddie Mac.
Freddie Mac provides various mortgage products and programs that cater to different types of borrowers, properties, and situations. You can select the option that most effectively aligns with your needs and preferences. This blog post will explain what Freddie Mac is, what programs they offer, and how they can help you achieve your homeownership goals.
Benefits of Loan Options Backed By Freddie Mac Mortgage Guidelines
What are the benefits of working with Freddie Mac? Working with Freddie Mac can offer you several benefits as a borrower or a renter. Some of these benefits are lower interest rates: Freddie Mac’s participation in the mortgage market ensures that borrowers enjoy low-interest rates, which can result in substantial savings amounting to thousands of dollars throughout their loan.
Freddie Mac mortgage products and programs often feature flexible underwriting guidelines, down payment requirements, income sources, and documentation standards. This flexibility can make it easier for you to qualify for a loan or refinance your existing loan.
More support: They offer a range of tools and resources to help you comprehend your mortgage options, prepare for homeownership, manage your finances, and prevent foreclosure. They collaborate with servicers and counselors to provide assistance and relief options if you encounter hardship or struggle to make your payments.
Mortgage Programs Backed By Freddie Mac Mortgage Guidelines
What programs does Freddie Mac offer? Freddie Mac offers a variety of mortgage products and programs that cater to different types of borrowers, properties, and situations. Some of their programs include many mortgage loan options that benefit homebuyers.
Freddie Mac Mortgage Guidelines offers mortgage products and programs backed by Freddie Mac that can assist you in overcoming common barriers to homeownership.
Freddie Mac Mortgage Guidelines can help borrowers who face credit and income issues to become homeowners such as lack of savings, credit issues, or income limitations. Additionally, they can help you access affordable housing options, including manufactured homes, community land trusts, or first-time homebuyer programs.
What is the Maximum DTI for a Freddie Mac Conventional Loan?
When evaluating conventional loans, Freddie Mac’s maximum debt-to-income (DTI) ratio varies depending on several factors, such as the loan program and the borrower’s financial profile. However, Freddie Mac follows the guidelines the Consumer Financial Protection Bureau (CFPB) set forth for Qualified Mortgages (QM), with a maximum DTI ratio of 43%.
It’s important to note that this rule has exceptions and variations. Some borrowers may qualify for loans with DTI ratios exceeding 43% under certain circumstances, particularly if they meet additional compensating factors or if the loan is eligible for exemptions, such as those granted for loans eligible for sale to government-sponsored enterprises (GSEs) like Freddie Mac. Click here to apply for conventional loans
What Type of Loans Does Freddie Mac Purchase?
As a government-sponsored enterprise (GSE), Freddie Mac primarily purchases conventional loans in the secondary mortgage market. Per industry standards, conventional loans refer to mortgage loans that do not have government insurance or guarantees, such as FHA or VA loans. These loans generally follow the guidelines established by the two leading GSEs in the US, Freddie Mac and Fannie Mae.
Here are some common types of loans that Freddie Mac purchases:
- One type of mortgage is fixed-rate, which maintains the same interest rate for the entire loan duration, usually ranging from 15 to 30 years.
- Adjustable-rate mortgages (ARMs) are loans with an interest rate that can fluctuate periodically based on market conditions. They often have an initial fixed-rate period followed by adjustable rates.
- Conforming Loans – According to industry norms, conforming loans are those that comply with the loan limits and underwriting guidelines set by Freddie Mac and Fannie Mae. They typically have lower interest rates and more favorable terms than non-conforming loans.
- Jumbo conforming loans – Loans that exceed the conforming loan limits set by Freddie Mac and Fannie Mae but still meet their underwriting guidelines. These loans are larger than standard conforming loans and often have slightly higher interest rates.
- Affordable lending programs – Freddie Mac offers various affordable housing programs aimed at helping low- to moderate-income borrowers, including Home Possible and HomeOne programs.
As part of its function, Freddie Mac purchases mortgages from lenders, enabling them to make more loans to homebuyers and freeing up capital in the process. Additionally, by setting standards and guidelines for these loans, Freddie Mac helps ensure the stability and efficiency of the secondary mortgage market.
Freddie Mac Mortgage Guidelines on HeritageOne
This program is designed for members of federally recognized—Native American tribes who want to buy or refinance a home on tribal land. The program allows borrowers to use conventional financing for various land ownership interests and offers flexible underwriting guidelines and low down payment options.
LIBOR-Indexed Mortgages
These are adjustable-rate mortgages (ARMs) with interest rates that change periodically based on the London Interbank Offered Rate (LIBOR), a benchmark rate banks use worldwide. For borrowers anticipating a move or refinancing within a few years, these adjustable-rate mortgages (ARMs) are appealing as they provide lower initial rates and payments than fixed-rate mortgages.
Freddie Mac Mortgage Guidelines on Enhanced Relief Refinance
This program allows borrowers with existing Freddie Mac mortgages who are current on their payments but have little or no home equity to refinance into a new loan with better terms. The program can help borrowers lower their interest rate, shorten their loan term, switch from an ARM to a fixed-rate mortgage, or eliminate mortgage insurance.
Freddie Mac Mortgage Guidelines on HFA Advantage
This program is available exclusively to housing finance agencies (HFAs) that provide affordable housing programs to low- and moderate-income borrowers. The program offers conventional financing with low down payment requirements, flexible income sources, reduced mortgage insurance coverage, and streamlined documentation.
Freddie Mac Mortgage Guidelines on Community Land Trust (CLT)
This program is for borrowers who want to buy or refinance a home that is part of a community land trust (CLT). This nonprofit organization owns the land and leases it to homeowners at an affordable price. The program allows borrowers to use conventional financing with low down payment options, simplified appraisal requirements, and favorable loan-to-value ratios.
Freddie Mac Mortgage Guidelines on CHOICERenovation
This program allows borrowers to finance a home purchase or refinance and the cost of its renovation with one loan. The program can be used for various renovations, such as adding energy-efficient features, repairing damage from natural disasters, or making accessibility improvements.
Freddie Mac Mortgage Guidelines on CHOICEHome Mortgage
This program is for borrowers who want to buy or refinance a manufactured home that meets certain quality standards. The program offers conventional financing with the same terms and pricing as site-built homes and allows using site-built homes as comparable sales for appraisal purposes.
How can Freddie Mac help you? Freddie Mac can help you achieve your homeownership goals by providing access to affordable and flexible mortgage options through its network of approved lenders. Whether buying your first home, refinancing your current home, renovating your home, or buying a manufactured home, Freddie Mac has a program that can suit your needs.
To learn more about Freddie Mac and its programs, visit their website or contact one of their lenders. Their website also provides valuable resources, including mortgage rates, research reports, consumer guides, and other helpful tools and information.
How Does Secondary Mortgage Markets Work
This section will give you a quick rundown of how it works. Freddie Mac will buy mortgages from banks and other lenders and create a mortgage-backed security. 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.
Since the mortgage crash, the US Treasury has backed this guaranteed payment. More simple terms, you make your monthly mortgage payment, and 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? Fannie Mae and Freddie Mac allow 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 everchanging. Freddie Mac Mortgage Guidelines seem to change overnight. Many loan officers are not up to date with their knowledge.
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. On a $150,000 refinance, the max cash-back to the borrower would be $2,000, even though 2% is $3,000. Cash at closing is now Greater than 1% or $2,000.
The new rule of 050% of the loan amount as cash-back or $2,000, whichever is more, gives 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 a $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 is below $200,000, you can 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 in mortgage lending. Part of this is because 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.
We stress guideline education to all our loan officers at Gustan Cho Associates. There have recently been some big announcements from Freddie Mac. One of the recent changes in Freddie Mac Mortgage Guidelines is the rate and term refinance update.
For instance, VA loans are different from FHA loans, which are again different from conventional loans. Within conventional lending, Fannie Mae and Freddie Mac have slightly different guidelines. The new Freddie Mac Student loan guidelines allow you to use the payment on the credit report. If there is no payment on the credit report, you only need to use .5% of the student loan balance as your monthly payment. Get more Freddie Mac guidelines on Student Loans
Freddie Mac Mortgage Guidelines on Self-Employed Borrowers
Self-Employed Borrower Update. Freddie Mac has now changed the rules for borrowers with a full-time primary job and a self-employed business.
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 get in touch with us at Gustan Cho Associates at 262-716-8151 or text for a faster response. Or email us at gcho@gustancho.com. We offer many great programs through Freddie Mac, such as HOMEONE; please see our HOMEONE BLOG for more details!
FAQs About Freddie Mac Mortgage Guidelines on Conventional Loans
1. What is Freddie Mac, and what does it do? Freddie Mac, established in 1970, is a GSE that aims to strengthen the US housing market. Its core mission is to purchase mortgages from lenders, bundle them into securities, and sell them to investors. This process injects liquidity, stability, and affordability into the mortgage market.
2. Is Freddie Mac considered a conventional loan provider? Freddie Mac primarily deals with conventional loans, which lack government insurance or guarantees (unlike FHA or VA loans). Conventional loans typically adhere to guidelines set by Freddie Mac and Fannie Mae, covering aspects like credit score, down payment, and debt-to-income ratio.
3. What are the benefits of choosing Freddie Mac for a mortgage? Opting for Freddie Mac can yield several benefits, including lower interest rates, flexible underwriting guidelines, and varied down payment requirements and income sources. Furthermore, Freddie Mac provides substantial support and resources to help borrowers comprehend their mortgage options, manage finances, and navigate potential foreclosure risks.
4. What types of loans does Freddie Mac purchase? Freddie Mac primarily purchases conventional loans in the secondary mortgage market. These encompass fixed-rate mortgages, adjustable-rate mortgages (ARMs), conforming loans, jumbo conforming loans, and loans offered under numerous affordable housing programs catering to low- to moderate-income borrowers.
5. What are the latest updates on Freddie Mac Mortgage Guidelines? Recent Freddie Mac Mortgage Guidelines updates include alterations to cash received at closing for rate and term refinances, revisions to student loan guidelines, and adjustments for self-employed borrowers. These updates aim to enhance accessibility to homeownership and address specific challenges borrowers encounter in the mortgage market.
