Expert Contributor
Fannie vs. Freddie –The Battle of the Agencies By Steve Cline, Preferred Financial
F
annie Mae and Freddie Mac are government-sponsored agencies that purchase mortgages on the secondary market. In doing so, they create liquidity and enable lenders to offer myriad mortgage products to borrowers. The 30-year fixed rate loan product in particular provides homeowners with stable, predictable mortgage payments for the life of the loan and remains the most popular product choice of homeowners. While the various loan programs’ parameters are interchangeable, there are a few factors that will have a significant impact on the final interest rate. Examples: • • • • •
Loan-to-value (LTV) and Cash-out Options Primary / 2nd home Freddie goes to 80% LTV on a 3-4 unit property. Fannie’s max LTV is 75%. Investment Freddie goes to 85% LTV on rate/term refinances. Fannie’s max LTV is 75%...a HUGE difference.
Underwriting differences: • Freddie has no maximum debt-to-income (DTI) ratio. • Fannie’s max DTI is 50%, making Freddie the more flexible option. • On open-end credit accounts (debts showing on your credit report that must be paid in full monthly), Freddie uses 5% of the balance as payment. • Fannie requires that funds be available to pay in full. • Freddie requires alimony payments to be shown as debt. Fannie allows alimony that the borrower owes to either be treated as debt OR to be subtracted from gross income. This difference may be of great help in making a debt-to-income ratio work. More than 45 factors like these differentiate the two entities. We at Preferred Financial always look at every possible enhancement that will benefit our clients. Feel free to contact me with your mortgage-related scenarios.
16
APRIL 2019
