Freddie Mac Maximum Loan Amount: Fill & Download for Free

When people call me asking about mortgages, they invariably start the conversation with, “My credit score is xxx.” They say this believing that a higher score will improve their chances of getting a mortgage.The fact is that, as a mortgage lender, I am not particularly concerned about a borrower’s credit score, assuming they meet the minimum criteria for the program they want. For a conventional loan (one that conforms to Fannie Mae or Freddie Mac guidelines), the minimum is 620. For a government-insured FHA loan with 3.5% down, the minimum is 580.This doesn’t mean that credit score is not important—it is. Because the credit score is an indicator of the risk a borrower presents to the lender, the score will determine the rate the borrower will get. If a borrower with a score of 740 or higher can get a 30-year fixed rate loan at 4.75%, one with a 620 score will see a rate of about 5.5% for the same loan.This is because of risk-based pricing. All residential lenders use it. We consult a matrix made up of the loan to value ratios across one axis, credit scores on the other. Where they intersect for a given borrower, we find the adjustment to the loan’s pricing.A borrower with a higher credit score—let’s say 740 or above—may be easier to approve for the simple reason that they typically have a “cleaner” credit report. There may be fewer inquiries that have to be explained, no recent derogatory entries requiring a letter of explanation.We routinely deal with these kinds of issues every working day. It is simply part of the loan process.There are multiple reasons why an application may get denied—even for a borrower with flawless credit and a very high score. The most common of these is that the debt to income ratio (DTI) is too high for the program and loan amount they want. The DTI is the single most important number in the loan process. It indicates the borrower’s capacity to pay the loan as agreed.We calculate the DTI by adding up the total house payment (including taxes, insurance and mortgage insurance, if any) and any other debt with ten months or more remaining (cal loans, student loans, credit card minimums, etc.) all divided by the borrower’s gross monthly income.A borrower with monthly income of $6,000 (before taxes), a total house payment of $2,000 and other debt payments of $700 would have total debt of $2,700 and a DTI of 45% (2,700 / 6,000 = 45%). Lenders can routinely approve conventional loans with a DTI up to 50%. For government-insured FHA loans, the limit is 55%.A borrower with a DTI greater than the program maximum will be denied without exception.There may be some solutions, however.Let’s say you have your sights set on a home for $500,000. You have gross income of $6,000 per month, no debt payments and enough cash for a 10% down payment. You have a credit score of 760.Because your loan is more than 80% of the home’s value, the lender will require some form of mortgage insurance, often referred to as “PMI.” This is to limit the lender’s risk where there is a smaller down payment—also referred to in banking terms as “protective equity.” PMI is most commonly paid monthly. The cost depends on the borrower’s credit score and the loan to value ratio. With a 760 score, the borrower will get the lowest rate—.30%, or $113 per month.The total monthly payment will look like this:The DTI is over 50% of your $6,000 monthly income, so the lender won’t be able to approve the loan.If you’re close, the lender may have some other ways to get your loan approved—and hopefully your loan officer will discuss the options with you rather than simply turning you down.If you had other debt payments, we could suggest paying off a credit card or other account to fix your DTI—but that’s not an option here, since we’ve already stipulated that you have no other debt.Another approach could be to “buy down” the rate by paying discount points. A one-time payment of $4,500 (one point, or 1% of the loan amount) would reduce your rate to about 4.5%, which would drop your total monthly payment to $2,981—good enough to approve your loan.One small problem though: you don’t have the extra $4,500 to buy the rate down. Let’s use a different approach, one that doesn’t require additional cash from you.You already know that you’re going to have to pay some form of mortgage insurance because your loan is more than 80% of the property’s value. The monthly PMI has raised your DTI above 50%, which is the deal killer.Instead of paying PMI monthly, we’ll select single premium PMI. This means you’ll make a single payment for the PMI policy and pay no monthly premium. We add it to your loan balance, so the money doesn’t come out of your pocket. Now your purchase looks like this:Because you don’t have a monthly PMI payment, your total payment—and your DTI—drop down to a point where your loan is now approvable.It’s quite possible that these details don’t apply to you. You may be planning to make a larger down payment than 10% to avoid PMI. If that is the case, you can use any of the following to get your DTI down to an approvable level:Make a larger down paymentPay off debt to reduce your total debt service“Buy down” the rate by paying discount points. Each 1% of the loan amount you pay will typically lower the rate by about .25%Choose a less expensive houseThere may be other avenues available to you, but this should give you some ideas.I hope this is helpful. Good luck!

There’s no loan limit for H1-B visa holders that I am aware of. The only kinds of limitations that this banker may have referred to is the county loan limits for Fannie Mae and Freddie Mac loans. These are the loans commonly referred to as “conforming” loans. The basic limit for these loans is $424,100, but certain “high cost” counties have higher numbers. Here in the pricey San Francisco Bay Area, the maximum is $636,150. If you need a loan of a higher amount, you would apply for a “jumbo” loan. These are loan programs that will NOT be sold to Fannie Mae or Freddie Mac. They offer loan amounts into the millions.The jumbo loans typically have different guidelines from conforming loans, such as higher down payment requirements and cash reserves after closing, but I have never heard of any lender imposing limits on holders of H1-B visas.My guess is that it was an inexperienced (or ill-informed) loan officer who gave you that faulty information.

Let’s have a look behind the curtain: I’ll do my best to demystify property investment for you, so you can understand how to successfully implement the strategy you suggested and why some people don’t do it.Home ownership is still a fundamental dream for many Americans. But building wealth through property investment is also a worthy aspiration. So why don’t more people do it? Why aren’t we all buying houses and letting the tenants pay the debt?Well, the short answer is because you need to qualify for property investment loans. And to do that, you need to fully understand how banks assess risk when lending you money. Unfortunately, most people don't have the experience and knowledge to pursue this type of investment strategy.Here’s exactly how this investment strategy works in America today.Owner OccupiersWhen a bank lends money for the purchase of a house, there is a preference for the borrower to be the owner and occupier of the property. This is by far the safest investment for a Bank, because people are emotionally motivated to pay the Bank back so they can own their home.But it is very difficult for a person, even one on a very good wage, to become wealthy through the ownership of just one house, so people with good equity in their properties (where the house is worth far more than they owe the Bank) will sometimes use that equity, and their strong income position, to buy a second house. Or a third house, and so on.Property Investment LoansThere are a couple of things to understand about property investment loans in the current financial climate. The first thing is that the interest rate is going to be higher than the rate you attract on your own home. These loans represent more risk to the Bank, so the Bank will charge you more to get involved with them.The second thing is that the Bank is almost certainly going to sell the debt to either Freddie Mac or Fannie Mae. Banks sell debts to these two organisations to raise money quickly so they can issue more loans. These two massive financial institutions were created by Congress to ensure the home lending industry had access to capital, and that’s how that process works.So in order to eventually sell the debt on, your Bank is going to want the investment loan to comply with the policies of one of these two companies, if not both. Therefore, if you want to understand whether you are going to qualify for a property investment loan or not, you need to understand what those policies are.The following is a solid overview of the lending policies of two of the largest financial institutions in the world. I will try very hard to keep it brief.The Financial Triad of LendingBanks basically look at three main things when considering whether to provide a loan or not:1. LTV – Loan to Value Ratio (your broker may also call this LVR). This is, as the acronym suggests, the ratio between the loan value, and the value of the property or properties the Bank is relying on to secure the loan;2. Ability to repay – this is an income and affordability calculation. Is there enough income available from the borrowers to repay the debt, and manage their living expenses?3. Credit Score, or Credit History – does the borrower’s financial history suggest they are likely to repay the loan?We will look at each one of these in a little more detail with regards to how Fannie Mae and Freddie Mac might consider a Property Investment loan application.Loan to Value RatioThis calculation can get complicated, but I will try to keep the concept simple, and it’s best if we use an example to do that.Let’s say you have a home worth $200,000, and you owe the Bank $100,000. Pretty straightforward calculation there, your LTV is 50%, and this is a very safe loan for the Bank. It’s even safer if you are living in the home.But what you need to understand is that just because your house is worth $200,000, doesn’t mean a Bank will lend you that much. Depending on where your house is and what type of property it is, the Bank is going to apply a Safe Lending Margin (or SLM) to that value. It will use the SLM to cap the amount of money it is willing to lend against it, and that cap could be anywhere from 5-20% of the property value.Now the same principal applies for investment properties, however as these are a little riskier for the Bank, the SLM is going to be higher, generally between 15-25%.Let’s take the next step in the calculation, and assume you’re buying a 2-unit investment property, worth $200,000. For the purposes of this calculation we will assume the Bank has an SLM of 15% on your home, and 25% on the investment property. The following is a typical LTV calculation based on those numbers:Own Home Value: $200,000 - ACurrent loan: $100,000 - BLTV: 85% = $170,000 - CAvailable value (C-B) = $70,000Investment Value: $200,000LTV: 75% = $150,000In the above scenario the Bank will give you an additional $70,000 against your own home, and $150,000 against the investment, which totals $220,000. Taking aside fees and charges etc, this should be more than enough to complete the purchase.Great, we are a third of the way there.IncomeIf you are buying an investment property with the intention of renting it out, it stands to reason you are going to be increasing your income and should therefore be able to afford to repay more debt. Now you will have your wage, plus the rental income from your tenants. So how do the Bank deal with this additional income?Both Fannie Mae and Freddie Mac have different approaches, and it is important to understand what they each are to ensure you have the best chances of being approved for the loan.Freddie Mac is far more conservative in this area. They require you to have had two years as a landlord in order for the incoming rent to be count as income. Fannie Mae does not have this requirement, making it a little easier to pass the affordability test with them.Either way, both Banks will apply a discount to the amount of income you expect to receive from the property. They do this to account for periods of vacancy and maintenance costs, and generally the discount is 25%, based on the lower of the signed rental agreement (if there is one in place) or an appraiser’s opinion of what the rent should be.Hang on, you say. I can have a signed rental agreement, but the Bank won’t accept that? They’ll rely on some other guy’s opinion of what I might get? Yeah, I know that doesn’t seem logical, but if you keep in mind that Banks are generally conservative by nature, it starts to make more sense.The Bank will total up all the different income sources you have, be it your wage, proposed rental income (discounted of course), and any other regular income they can reasonably rely on. Maybe you get a military pension, and insurance endowment. Anything else. Then they make a calculation to determine if the total of all that income is enough to cover the repayments on the proposed debt ($320,000 in the scenario above).A good rule of thumb is that if your debt to income ratio (that is the amount of your total income taken up by debt repayments) does not exceed 45%, you’re probably in good shape. If that test ticks the right boxes, then great, you’re now two thirds of the way there.Credit ScoreThere are a lot of things that can affect your credit score, but essentially it is a guide the Bank uses to determine if you have a tendency to pay things back. The different institutions might use different information sources to calculate it, but the principals are the same. If you pay things back regularly (including disputed phone bills, believe me) your score is probably going to be ok.The absolute minimum credit score you can have is 620, but for property investment loans Freddie Mac requires a score of 740, while Fannie Mae requires 720.Let’s say you have a fantastic credit history, and your score is 800. Well, congratulations, you have hit all three benchmarks, and your loan is as good as approved. Head down to the hardware store and buy some paint for that new property of yours. Right?Well, not quite. Now we need to review the eligibility criteria of each Bank. How many properties are you allowed to own, and which properties will the Bank want to rely on? Once again both Fannie Mae and Freddie Mac have slightly different rules on this.Fannie MaeIt’s complicated. The maximum number of properties acceptable to Fannie Mae is six (you can own more than that, but they will only consider six in terms of providing finance), unless one of them is your own home. If you are throwing your own home into the mix, this reduces the risk to the Bank, so they relax the rules on other properties, meaning you can have more. But not more than ten.LTV, Income and Credit Score requirement still apply, however if you are tying more than six properties into the loan facility be aware that the Credit Score requirements may change.Freddie MacFreddie’s rule is a little simpler. The maximum number of properties that will qualify is six, regardless of whether one of them is your own home or not. If you need to bring more than six properties into the mix to meet the LTV rules, Freddie Mac will not be able to assist you.Is It Really That Hard?It’s not really that hard. There are some details in it, and the different institutions look at things each in their own way, but overall it is a simple process. If you earn good money, pay people back on time, and have a reasonable amount of equity in your home, you can really get into this investment strategy. You can, if you’re smart about it, build up a tidy little portfolio of rental properties, and if you are happy to max this out at around six, you have some pretty good flexibility about how you finance that.If you want to become a bit of a property mogul, and buy more properties that that, or perhaps buy some vacant land and develop a dozen townhouses for resale or rental, there are other ways to do that. If that’s what you want, then you look at different types of Banks and you take out Commercial Loans. Those types of loans are far more of a partnership with the Bank, where the financier wants more involvement in the process because they are even riskier. But with the increased risk to the Bank, be aware that the interest rates will once again be higher.But maybe you just want to build a little wealth, maybe help set your children up with opportunities to enter the property market.When you begin a conversation with the Bank Manager, understanding the simple principals we’ve discussed here will hopefully make your experience far easier.