Posts Tagged ‘Fannie Mae loans’

Differences between conventional loans

June 6, 2019

blog-author-clayjeffreys3

Fannie Mae and Freddie Mac offer conventional loans. Their guidelines are almost completely identical, yet there are some unique differences that can come in handy under the right circumstances.

Here are some differences between Fannie and Freddie:

Freddie Mac:

  • Often only requires one bank statement (Fannie requires the two most recent bank statements).
  • When doing a refinance, the borrower can take the greater of 1% of the loan amount or $2,000. If the loan is $400,000, then the borrower could get up to $4,000 back and not be a cash out refinance (Fannie Mae has a $2,000 limit).
  • Employed by a family member? Only one year of tax returns are required (Fannie Mae requires 2 years).
  • Student loans in deferment have a payment calculated by taking 0.5% of the total balance (Fannie Mae is 1% of the balance).
  • Self employed buyers only need one year of tax returns if the business is over 5 years old. If less than 5 years, then two years are required (requirements for Fannie Mae are not as straight forward as Freddie Mac*).

Fannie Mae:

  • Higher likelihood of getting a Property Inspection Waiver using a Fannie Mae conventional loan.
  • If a buyer has a second job that loses money as shown on a filed tax return, the loss can be ignored with Fannie Mae so long as the job is not in the same line of work as their primary job (Freddie Mac counts all income losses from tax returns).
  • Student Loan Cash Out – a homeowner can do a cash out refinance to pay off student loans without taking the interest rate increase from doing a cash out refinance.
  • DACA recipients eligible to purchase a home with a Fannie Mae conventional loan (Freddie Mac does not allow DACA buyers).
  • Normally requires fewer months of reserves than Freddie Mac.

spot-the-difference-worksheets-pandaNext time you apply for a home loan and look to do a conventional loan, you may not think it matters if it is a Freddie Mac or Fannie Mae loan. As you just read, choosing Fannie or Freddie under the right situation can make all the difference in the world. That’s why you want to work with a Loan Officer who is aware of these small differences.

Looking to get prequalified for a home purchase in the state of Georgia? If yes, contact me today.  I’ll ask very specific questions about your situation and make sure the correct conventional loan product is chosen.

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*With Fannie Mae, self employed buyers may only need 1 year of tax returns regardless of how long the business has been open. The default is two years of tax returns, but could be one year under the right circumstance (low debt to income ratio, high down payment, excellent credit, etc.). 

Re-pull of Credit Report – Loan Approval Process

September 11, 2012

In part 1 of the series, we discussed the Loan Quality Initiative started by Fannie Mae. That post included the reason behind the initiative and some easy steps to take to avoid any complications during the loan process.

This week we’ll focus on the loan approval process itself.

Prior to Fannie Mae’s Loan Quality Initiative, the loan process has one less step in it. If someone was looking to buy or refinance a home, they would first apply for a mortgage. Then they would have a credit check. If everything was in order, then the loan would be submitted to underwriting for approval. Once the loan was approved by the underwriter, then we’d close the loan.

Now there is one extra step between underwriting and closing that can definitely impact the approval process. Lenders are required to re-pull the credit report right before closing. This makes the loan approval process look more like applying for the loan, credit check, underwriting approval, re-credit check (which is confirming the underwriting approval) and then closing.

Did you notice that extra step? This means a loan isn’t officially approved until the credit score re-pull step is completed. Why?

If a borrower has opened a new credit account, financed a car, or closed a credit account, it can impact a credit report in a variety of ways:

  • a newly opened credit account can negatively impact a credit score. If the credit score goes down too much, it could also negatively impact the interest rate
  • a newly financed car can also reduce one’s credit score. A newly financed car can also drastically impact the debt to income ratio. If this ratio is pushed up too high, it could cause someone to no longer qualify for the mortgage
  • both of these examples would put the loan back into underwriting for a second review. This could delay closing.

It is easy to avoid this pitfall. Simply follow the steps outlined in Part 1 of this series. If you do not change your credit report by opening or closing credit accounts, you’ll be fine when it comes to the review of the re-pulled credit report.

If you are looking to buy or refinance a home in the state of Georgia and would like to work with a loan officer who is aware of the coming credit re-pull and can help you avoid this potential pitfall, I know just the person to connect you with :-). Contact me today to get started.

Next week, the third and final part of the series. We’ll discuss the things an underwriter will look for on the re-pull of the credit report.

Re-pull of Credit Report – Why it’s Required

September 4, 2012

There are no ifs, ands, or buts about it… if you are applying for a mortgage, your credit report will be re-pulled prior to closing. If you are not careful, this could cause your loan terms to be  reviewed, revised, and in some rare cases, denied.

This will be the first of a three part series reviewing this change. For this post, let’s talk about why a borrower’s credit report is re-pulled. The next post will cover what the loan approval process looks like now along with how a loan could be impacted by the re-pull. We’ll conclude the series by reviewing what an underwriter is looking for when your credit is re-pulled.

The re-pulling of one’s credit report is part of Fannie Mae’s Loan Quality Initiative. This loan quality initiative started as a way to ensure borrowers who were qualified for a loan at the start of the mortgage process STILL qualify for that loan at closing. The initiative looks to ensure that borrowers haven’t applied for new credit that may hinder them from making the new mortgage payment.

This has been in place for quite some time now, so loan officers and underwriters are well aware of the process, what to expect, and how to advise their clients. The easiest thing to do is NOT change your credit once a loan officer pulls your credit and determines you are prequalified for a loan. Problems can be avoided by taking the following steps through the loan closing:

  • do not apply for new credit. This includes major credit cards and store credit cards.
  • do not finance new furniture on a furniture store’s credit
  • do not make or finance a major purchase such as a car, boat or home appliances. Even if paying in cash, you might accidentally use up too much cash and not have enough left over for the down payment on the new loan.
  • do not drastically charge up your existing credit cards
  • do not close existing credit accounts

I advise my clients to continue to operate as they normally do on a month-to-month basis, but do NOT change their credit report. This includes getting new credit AND closing existing credit. Once we’ve closed on the loan, then finance that new furniture… get that new credit card… payoff a current credit account, etc. By taking these steps, you can help to ensure that your loan process will run smoothly from start to finish.

Looking to work with a professional who can help guide you around these potential pitfalls (and more)? If the property is in the state of Georgia, reach out to me to get started on your new loan today!

Next time, we’ll look at the loan approval process along with how a loan could be impacted by the credit re-pull.