Conventional Home Loans Getting Cheaper

In December of 2020, Fannie Mae and Freddie Mac, the two largest government-controlled mortgage companies, which purchase half of all mortgages in the US, applied an additional 0.5% fee to all of their conventional loan purchases.  The fee, intended to reduce Covid-19 and the housing market risks, added approximately $1,400 in costs to an average contract for mortgage loan originators.  Not surprisingly, this cost was ultimately passed on to consumers.  With the economy now on more solid footing, these fees are being eliminated as of August 1, 2021.  If you are looking to refinance your current mortgage with a conventional loan product like Fannie Mae/Freddie Mac, below are some things to consider:

Do You Qualify for Fannie Mae/Freddie Mac Loan?

While technically separate entities, the lending guidelines for both Fannie Mae and Freddie Mac are virtually identical.  See Understanding Fannie Mae for more detailed guidance and exceptions on loans, but the general guidelines to qualify/receive a single-family home loan are below:

Loan Limit:  $548,250 for Alabama (The loan limit is higher in certain high-cost regions)

Down Payment:  3% (Mortgage Insurance required with less than 20% down payment)

Credit Score:  620

Debt to Income Ratio:  45% or less

Income:  Two years of steady employment/income

What if You Do Not Qualify?

Additional loan options like Federal Housing Administration (FHA) loans exist for those who do not qualify for conventional loans.  Not surprisingly, the terms for these loans are not as favorable and include smaller loan limits, more significant down payments, and mandatory mortgage insurance, to name a few.  See FHA vs. Conventional Loans for more details on the differences. Recommendation:  Seek the advice of a mortgage loan officer for all available options before making any refinancing decisions.

Get Multiple Quotes

If looking to refinance your home, be sure to get multiple quotes.  While the fee owed to Fannie Mae and Freddie Mac is going away as of August 1, many mortgage loan originators may NOT adjust their fees immediately, allowing them to generate greater profits.  Recommendation:  Always test the market for the best rates.

For weekly insights, follow The Welch Group every Tuesday morning on WBRC Fox 6 for the money Tuesday segment.

Marshall Clay CFP, J.D., is a Partner and Senior Advisor at The Welch Group, LLC, which specializes in providing Fee-Only investment management and financial advice to families throughout the United States. Marshall is a graduate of the United States Military Academy in West Point, New York, the Cumberland School of Law in Birmingham, Alabama, and is a CERTIFIED FINANCIAL PLANNER™.  In addition, Marshall is a frequent guest on local television stations as an expert on various financial planning matters.

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Welch Group, LLC -“Welch”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Welch. Please remember that if you are a Welch client, it remains your responsibility to advise Welch, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Welch is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Welch’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Welch does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Welch’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.