How Changes at Fannie Mae and Freddie Mac Effect Home Loans
on Monday, January 5th, 2015 at 4:45pm.
Fannie Mae and Freddie Mac are the biggest mortgage banks in the country. During the recession, the United State’s government backed the two banks with the understanding that Fannie and Freddie would tighten up on regulations, which was discussed in a recent blog post. Since things are getting better, these tightened regulations may be loosening up.
Down Payment Changes
One of the changes to this plan includes giving home loans with a lower down payment. Recently, banks have only been allowed to offer loans to people who could pay at least 5% down payment. Oftentimes, individual banks required that percentage be closer to 20%. Now, two new programs will offer loans with a lower 3% down payment requirement. Fannie’s program is called My Community Mortgage and takes place almost immediately. Freddie’s Home Possible Advantage will begin on March 23. These two programs will allow for home buyers who haven’t saved 5% down payment to still qualify for a home loan.
Banks Absolve Less Risk
Another move by the mortgage giants is to end a program that forces smaller banks to absolve more of the risk if a loan defaults. You probably won’t ever get a loan directly from Fannie or Freddie. Instead, they back your bank that gives you the loan. Fannie and Freddie have been enforcing stricter regulations that make smaller banks buy back loans that default.
Because of these new requirements, banks have been tightening regulations to avoid paying steep fees and buying back default loans. Now, Fannie and Freddie are offering to absolve more of the risk and loosen regulations on smaller banks. This should help your local St. George bank feel more comfortable about giving out loans to people without perfect credit and a large down payment.
What This Means For You
As a home buyer, you may find it easier to qualify for a home loan than in the past few months. If you don’t have a full 5% saved up for down payment, or if you don’t have perfect credit, it has probably been pretty difficult. Now, you may find you have more options due to the looser regulations, and that banks are more willing to give you a home loan than they were before. Always remember to budget wisely and make sure your home payments and interest rates make good financial sense.
If you are hoping to buy a home this year, now is a great time. Loan regulations are loosening and the economy is picking up. If you work hard with your St. George real estate agent, you may be able to find a great deal within your budget. Good luck and happy hunting!