Freddie Mac will reduce primary home down payment requirements on Nov. 15 for borrowers with incomes up to 80% of median land taking out mortgages backed by 2-4 units. In addition, Freddie will relax the guidelines for lending to prefabricated houses.
For 2-4 residential units, the maximum loan-to-value ratio was limited to 85%, unless secondary liens that are difficult to obtain on the private market were concluded, in which case the overall LTV limit was 95%. The change will increase the limit for borrowers receiving down payment assistance from a subsidized source such as a government housing agency up to 105% while ensuring that borrowers must pay at least 3% of the loan amount. Borrowers without subsidized down payment assistance will have an LTV of a maximum of 95% after the new requirements come into force.
The upcoming underwriting changes through Freddie's Home Possible program are aimed at meeting the Biden government’s recently announced goals for affordable housing, which aim to make wealth creation easier through owner-occupied properties of 2 to 4 units and low-cost prefabricated houses.
"You took a substantial down payment for 2-4 units unless you had a second lien, which was often impractical, so that makes a pretty big difference," said Daniel Jacobs, managing director of TruLoan Mortgage in Charlotte, NC , a lender operating in the Southeast and Midwest. "It enables people to build wealth by using additional income-generating units when buying a home."
Freddie will also change the LTV calculations for prefabricated homes less than a year in duration to give borrowers more access to the relatively lower interest rates the government-sponsored company offers on loans that are securitized as real estate.
The change will make it possible to use the appraisal of both the land and the newly installed home to determine the LTV, even if a loan has not matured a year. Currently, before reaching the one-year limit, a complicated formula is used that takes into account the cost of the property to lower the valuation.
"This makes it much easier for people looking for prefabricated homes to get conventional funding," said Jacobs.
The new underwriting guidelines apply to loans settled on or after November 15th.