Over the last few decades, Freddie Mac has solidified their reputation for backing good loan programs for first time home buyers. Many people get Freddie Mac and FHA confused, so let’s get into it.
For years, the go to mortgage program for first time home buyers with average credit and a low-down payment was the FHA mortgage. Loans backed by the Federal Housing Administration require only a 3.5% down payment with a 580-credit score in some cases. Freddie Mac has wanted to get in on the action and has been trying to provide more mortgage programs to underwrite first time home buyers.
It has been three years since Freddie Mac brought out a conventional mortgage loan for first time buyers that only required a 3% down payment for some borrowers. The program was made for low and moderate-income buyers. According to Federal Housing Finance Agency Director Mel Watt, the Freddie 3% down program has been growing every year since 2015 when it was first introduced.
But in April 2018, Freddie Mac decided to turbocharge the 3% down program and expand its underwriting of first time home buyers.
Freddie Mac announced that month that it is bringing out a new 3% down program for certain first-time home buyers. The thing that makes this program different is there are no income or geographic restrictions.
The new loan program is called HomeOne and it puts Freddie Mac more in direct competition with FHA loans.
Freddie Mac states this new loan will not replace the Home Possible 3% down mortgage. Instead, the new program is supposed to complement the Home Possible loan program, which is still going to be available to those with low and moderate incomes.
Freddie Mac stated that their new mortgage product is made for the first-time homebuyer, who are currently more than 50% of all home buyers.
Freddie Mac reports that the HomeOne mortgage must be underwritten via the Loan Product Advisor. It makes a total risk assessment based upon factors related to capacity, collateral and credit.
Also, the HomeOne mortgage is only for conforming, fixed rate loans that are secured by a single-family home or condo. Also, one of the buyers must be defined as a first-time home buyer.
When all buyers are first time, at least one of them must participate in a home ownership education program to qualify for the loan. The loan can be used for single family homes, townhouses and condos.
The new Freddie Mac loan is part of the company’s attempt to support more and better lending, provide homeownership to first time buyers and enhance credit access.
In addition to the changes to the HomeOne program and increasing access to credit for first time home buyers, Freddie Mac reported it would make changes to the Home Possible program to sharpen the focus on low and middle-income borrowers.
For example, Home Possible income limits will be topped at 100% of area median income for homes in certain high cost areas, disaster areas and minority census tracts.
Freddie Mac reports the new HomeOne mortgage will be open to borrowers as of July 29, 2018.
Tips for First Time Homebuyers
Whether you get a Freddie Mac or FHA backed mortgage, there are some things that first time home buyers can do to make their home buying efforts easier:
- Save for a down payment early. You can put down as little as 3%, but it is better to put down more. The more you put down, the less your mortgage payment is, and if you put down 20%, you do not have to pay for mortgage insurance.
- Decide how much home you can afford. Use a home affordability calculator to help you decide how much you can really afford.
- Check your credit. Nothing will drive up the cost of your mortgage more than a bad credit score. Make sure that yours is as high as possible. You should have no late payments on your credit report in the past year at least, and should have as little consumer debt as possible.
The good news for first time home buyers is there are plenty of mortgage options available with a low down payment and reasonable credit requirements. Whether you go with FHA, Freddie Mac or Fannie Mae loan products, you can fairly easily be approved for a mortgage if you have a credit score at least in the low 600s and can prove you have the income to support the mortgage payment.