The difference between Fannie Mae and Freddie Mac goes a bit farther than just their names.

For example, oftentimes they don’t mirror each other when it comes to their underwriting guidelines on home loans. More importantly, depending on your credit and financial profiles, Fannie and Freddie offer competing pricing, interest rates and terms as well. Therefore, when they announce changes to their underwriting guidelines, everyone in the mortgage lending world listens carefully.

Starting this month, Freddie is rolling out several updates. The first is the removal of the minimum 5 percent contribution from a borrower’s personal funds on owner- occupied loans. This means that a borrower can use 100 percent gift funds for their down-payment.

While this matches Fannie’s guidelines, the fact that Freddie will allow you to use what’s called blended income of a non-occupant co-borrower creates an attractive alternative for files that would normally have to use Federal Housing Administration-insured financing when adding let’s say your mom or dad to the loan application. Fannie does not have this blended income option.

Another update from Freddie is their removal of the 120-day waiting period prior to being able to take cash-out of your home from the date of purchase.

In addition, there is no longer a requirement for you to be on the title to a property for at least six months prior to the note date as long as at least one borrower on a cash-out refinance either inherited or was legally awarded the subject property. Both of these adjustments follow Fannie Mae.

The fourth update is a big one if you have recently become a landlord. Freddie used to require a two-year landlord history to leverage rental income from the property to help with qualification for a loan.

This requirement will be eliminated going forward and aligned with Fannie Mae to offer you more financing options to choose from should you fall into this category. Furthermore, Freddie took away their requirement of needing six month’s rent loss insurance on your rental properties as well.

Perhaps the most impactful updates being released this month are focused on helping you convert your current home to an investment property and being able to finance multiple properties with Freddie.

The current requirements for the conversion of a primary residence to an investment property require extra reserves from you and 25 percent equity on the departing residence. Both of these restrictions are being lifted and falls in line with Fannie’s recent change on this topic too.

Lastly, if you have more than four properties financed, previously only Fannie would allow you to go beyond this number and then cap you at a total of 10.

In fact, if you wanted to pull cash from any of your 10 financed properties you would be faced with tighter FICO score requirements and narrower guideline parameters to do such. Fortunately, Freddie Mac will increase their cap to a total of six financed properties and not have the limitations that Fannie does when taking cash-out of them.

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Chris Salese can be reached at chris@delsurmortgage.com or (707) 363-4439. He is a licensed California mortgage banker (NMLS 254469/1850 CA BRE 01377933/01215943) and equal housing lender.


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