Posts Tagged ‘income exception’

Is Freddie better than Fannie?

August 13, 2014


Both Freddie Mac and Fannie Mae offer conventional loan products, but is one better than the other? In most ways, the loan products are similar. It’s like choosing the difference between chocolate cake and yellow cake… either way, you are still eating cake!

Even so, what if a specific situation made the decision for you? For instance, if you are allergic to chocolate, you probably don’t need to eat chocolate cake. There are certain situations that make Freddie Mac loans more appearing than Fannie Mae loans. Here are three of them.

  • Self-Employed Borrowers: Freddie Mac loans almost always only require one year of tax returns. Self employed borrowers can have a harder time qualifying for a conventional loan when two years of tax returns are needed… what if they had a down year two years ago?… what about declining income from last year to the current year? Either of those can cause problems. Both are eliminated when using a Freddie Mac conventional loan product since, in most cases, only one year of self employed income on the tax returns is required.
  • Income Exception: Let’s say my client just got a promotion, but the new income doesn’t begin for 60 days and the closing date on the new home is within 30 days. That will not be a problem using a Freddie Mac loan. As long as there is a 720+ credit score, the increased income begins within 90 days of closing, and the client has enough reserves to make mortgage payments until the new income begins, I can get someone approved for a loan using their increased income.
  • Non Occupant Co-Borrower: For the longest time, conventional loans would not allow non-occupant-co-borrowers* to co-sign on a loan. Freddie Mac will allow someone who is not going to live in the home co-sign onto someone else’s mortgage. I would be able to use the co-signer’s income and assets when qualifying the person who will live in the home as their primary residence. Whether or not this is a good idea to co-sign is a conversation the co-signer should have with the loan officer and their financial adviser. That said, if they are willing to co-sign, we can make it happen!

Fannie Mae and Freddie Mac loans offer similar loan products at similar interest rates. There really isn’t much difference between the two. That said, there are certain scenarios that make Freddie Mac loans better for the loan applicant. This is why you need to work with a mortgage lender who will ask the detailed questions that might lead to one of these scenarios. I can’t tell you how many times I have spoken with someone who started the conversation saying “I can’t qualify for a loan,” but they actually could qualify. You never know until you ask, so at least ask the question.

If you are buying a home in the state of Georgia, I can help you get started. Contact me today and we’ll get the prequalification process underway.

* a non-occupant-co-borrower is someone who will co-signing on a mortgage for someone else, but they will not live in the property being purchased.