In this blog, we will cover 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. 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. In this article, we will discuss and cover Freddie Mac mortgage guidelines on Conventional loans.
How Does Secondary Mortgage Markets Work
In this section, we 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 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? 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. 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. 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 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 amount 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 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.
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 now only need to use .5% of the student loan balance as your monthly payment. 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 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 a faster response. Or email us at mgracz@gustancho.com. We offer many great programs through Freddie Mac such as HOMEONE, please see our HOMEONE BLOG for more details!
February 11, 2023 - 4 min read