Freddie Mac Home Loans

Freddie who? Even if you've heard of Freddie Mac, you might not be familiar with how this entity affects the housing and mortgage industry. Freddie Mac—officially titled the Federal Home Loan Mortgage Corporation—is a government-sponsored corporation that purchases home loans from mortgage companies, banks, and other financial institutions.

What is Freddie Mac?

Freddie Mac and Fannie Mae are the largest buyers of mortgage loans in the country. These organizations purchase mortgages so that banks and mortgage companies can maintain enough cash to create new mortgage products. Many mortgage companies would run out of money if they couldn't sell off their loans. And that wouldn't be good for home buyers. Mortgage loans would become less accessible to both first-time home buyers and repeat buyers.

How Does Freddie Mac Work?

Freddie Mac and Fannie Mae are very similar, but they differ in where they purchase these mortgage loans. Freddie Mac purchases home mortgage loans from smaller banks, also known as thrift banks. Fannie Mae focuses on purchasing mortgages from larger commercial banks.

After purchasing mortgages, Freddie Mac will sometimes keep a portion of these loans as its own investment. Other times, though, the organization bundles these loans into mortgage-backed securities and sells them to investors on the secondary market.

Freddie Mac guarantees or backs these loans. This means that if a borrower stops paying their mortgage, Freddie Mac will pay the investor.

Freddie Mac Guidelines

Freddie Mac doesn’t buy every type of mortgage loan. Loans purchased by Freddie Mac and Fannie Mae are called conforming loans. These conforming loans are conventional home loans that adhere to the guidelines set forth by Freddie Mac.

The Federal National Mortgage Association (FNMA) will periodically increase the conforming loan limit to increase home buying affordability.

Freddie Mac will only purchase loans that are a safe investment. These include conforming loans with a maximum loan limit of $548,250 for a one-unit, single-family home (for 2021). In high-cost areas, the conforming loan limit is no more than $822,375 for a one-unit single-family home. If a loan is larger than that amount, Freddie Mac won't guarantee it, and you'll need to look into getting a non-conforming jumbo loan.

Freddie Mac does allow low down payments. You may be able to purchase a home with as little as 5% down with a standard conventional loan. Those who need a smaller down payment may qualify for Freddie Mac’s Home Possible program. This program is available to those with low-to-moderate incomes.

Here are a couple of other things to be aware of with conforming loans. If you put down less than 20% with a conventional loan, you'll be on the hook to pay mortgage insurance. Also, as with most mortgages, there are minimum credit requirements to qualify for a conforming loan.

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