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Freddie Mac Home Loans

Even if you've heard of Freddie Mac, you might not understand how this entity affects the housing and mortgage industry.


What is a Freddie Mac Loan?

Freddie Mac, like Fannie Mae, is a government-backed housing organization. These organizations have similar functions, in that they purchase mortgages so that banks and mortgage companies can maintain enough cash to create new mortgage products. Without the ability to sell off their loans, many mortgage companies would run out of money. And as a result, mortgage loans would become less accessible to first-time homebuyers and repeat buyers.

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How does Freddie Mac Work?

But while Freddie Mac is similar to Fannie Mae, the difference is that Freddie Mac purchases home mortgage loans from smaller banks, also known as thrift banks. Fannie Mae purchases its mortgages from larger commercial banks.

After purchasing mortgages, Freddie Mac will sometimes keep a portion of these loans as its own investment. Other times, though, the organization bundles these loans into mortgage-backed securities and sells them to investors on the secondary market.

Freddie Mac guarantees or backs these loans. If a borrower stops paying their mortgage, Freddie Mac pays the investor.

Freddie Mac Guidelines

Similar to Fannie Mae, Freddie Mac doesn’t buy every type of mortgage loan. Rather, it only buys those mortgages that conform to its guidelines. Conforming loans are conventional home loans that adhere to the guidelines set forth by Freddie Mac.

The Federal National Mortgage Association (FNMA) will periodically increase the conforming loan limit to increase home buying affordability.

Freddie Mac will only purchase safe loans. These include conforming loans with a maximum loan limit of $510,400 for a one-unit, single-family home (for 2020). In high-cost areas, the conforming loan limit is no more than $765,600 for a one-unit single-family home. Freddie Mac does not guarantee loans that exceed this limit. If you need a bigger mortgage, you will have to get a jumbo loan (non-conforming).

Freddie Mac does allow low down payments. Borrowers can purchase with as little as 5% down with a standard conventional loan. Those who need a smaller down payment may qualify for Freddie Mac’s Home Possible program, which only requires 3% down. This program is available to those with low-to-moderate incomes.

Borrower who puts down less than 20% may have to pay mortgage insurance. Typically, Freddie Mac requires a minimum credit score of 620.

How to Apply for a Freddie Mac Mortgage

Are you ready to take the next step and get a customized mortgage quote? Our loan officers can assist you through the application process, provide expert guidance, and answer any questions you have.

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