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Freddie Mac Multi Faminly Financing ChangeFreddie Mac Multi Family Financing

There is a major change coming soon to Freddie Mac multi family financing.  It takes effect on November 15th for all 1st time home buyers who want a 2-4 multi family home.  Freddie Mac is making it easier to buy these properties by lowering the mortgage down payment requirements.

This is a huge change which will certainly increase the number of buyers for 2-4 family homes.

Let’s discuss what Freddie Mac is and how this change effects you.

What Is Freddie Mac

Freddie Mac is the nickname for the Federal Home Loan Mortgage Corporation.  Freddie Mac was created by Congress in 1970 to help middle income families secure a mortgage. Backed by the US Government, it’s owned by investors who buy it’s stock.

Freddie Mac provides stable liquidity to the mortgage market.  What does this mean?  Simply stated it works like this:

Liquidity in the Mortgage Market

Freddie Mac buys mortgages given out by small banks.  This sends money back to small banks.  As a result, small banks can keep lending.  They make a profit by charging Freddie a premium.  Freddie Mac sells the loans to investors at a profit.  This gives Freddie money to lend out and a profit.  As a result, money keeps flowing into the mortgage market preserving liquidity.

Freddie Creates Stability

Banks must follow Freddie’s lending requirements called mortgage guidelines.  Because they must, guidelines are standardized creating stability in the mortgage market.  Imagine the mess we’d have if each bank had it’s own different demands to get a loan.

Additionally mortgage guidelines require a buyer to be financially solid enough to pay their mortgage.  Because of all this, Freddie gives both liquidity and stability to mortgage financing.

Multi Family Financing Changes

While many 1st time home buyers would love to invest in real estate, they can’t.  Freddie Mac currently requires a 15% down payment.  Rates aren’t the issue because they’re at historically low levels.  As a result even low FICO scores get a rate that beats what used to be the norm.

This changes November 15th for Freddie Mac multi family financing.  Every mortgage application submitted from November 15 forward only needs a 5% down payment.

This is huge. Let’s take a $500,000 2 family.  15% requires a $75,000 down payment while 5% only needs $25,000.  How much more will this difference cost in your mortgage?  $217 monthly for the average customer.

Qualifying for the Mortgage

You can qualify for Freddie Mac multi family financing soon with only 5% down.  Rick Casatelli, my Weichert banker, said  guidelines allow for as low as a 620 FICO score.  He advises against this and works with buyers developing a plan to improve their score.  Rick does not believe anyone should buy a home with a payment that’s not comfortable for them.

I’ve found a lot of pre-approvals to be very unreliable because they’re sophisticated pre-qualifications.  Rick delivers pre-approvals that have gone through the 1st level of underwriting.  As a result, you have a budget you can trust.

Start With A 2 Family Home

Buying a 2 family home as your first purchase is a smart idea.  It’s a fabulous long term investment that becomes an income stream in your retirement.  Although you don’t have the space and privacy of a single family home, you are building wealth.  I believe in these as great opportunities for 1st time home buyers.

Let’s go back to that 2 family home.  Assume 1 side rents out for $1,200 per month or $275,000 in mortgage dollars.  That’s like buying a $500,000 property for $225,000.  If you want to talk about this, contact me or some other professional Realtor.  Nothing builds wealth long term like real estate.

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