People do not realize that 95% of all lenders use Fannie Mae to get loans approved. The reason for this is because it is more difficult for a lender to get approved to do Freddie Mac loans. If a customer gets turned down for an FHA loan there is a very good chance the lender was trying to go to Fannie Mae with it. People need to work with a mortgage company that can offer both Fannie Mae and Freddie Mac mortgages. Freddie Mac will do loans Fannie Mae will not. Barclay Butler Financial Inc. can do both Freddie Mac & Fannie Mae mortgages.
I have seen many FHA loans that Fannie Mae will not do and Freddie Mac will. Fannie has trouble when a customer is using a gift, has lower credit scores (below 640), has low income or high debt to income ratios and or has limited credit trade lines on their credit report. Freddie Mac also looks at a credit report differently. There may be an error on the credit report and Fannie Mae will turn down the loan but Freddie Mac will not.
When some one is getting a gift from a family member, this adds additional risk to the loan. Fannie’s underwriting system (DU) sometimes cannot recognize the gift in their system, and therefore will turn down the loan. Most mortgage companies will miss this and just tell the customer they have been turned down.
When customers have lower scores in general I see that Freddie Mac’s underwriting system (LP) is more aggressive in approving the loan.
Freddie Mac underwriting system is also more friendly when a customer has over a 50% debt to income ratio or lower income.
If a customer has very limited trade lines on their credit report, Freddie Mac again is more apt to approve the loan than Fannie Mae. When I am referring to trade lines I am referring to auto loans, credit cards, student loans, boat loans etc. If a customer has 3 or less open and active trade lines I see Freddie being more friendly.
A lot of customers have errors on their credit report. The most common errors I see are related to a bankruptcy, short sale, or a foreclosure. If a customer had a previous bankruptcy some of the trade lines will not be reported correctly. I have seen where the bankruptcy has been discharged 6 yrs. ago but one of the trade-lines is still reporting it current and Fannie Mae (DU) turns down the loan but Freddie Mac will not. The same will hold true for a Foreclosure. The foreclosure trade-line is still showing active but the foreclosure occurred 5 yrs. ago. Short sales will cause the same problem on your credit report.
Both Fannie Mae & Freddie Mac follow the same rules that FHA mandates. The reason for the discrepancies is how Fannie Mae’s underwriting system (DU) reads an application and credit report versus Freddie Mac’s underwriting (LP).
I would use a mortgage company that knows and offers both Fannie Mae and Freddie Mac mortgages.
Barclay Butler Financial uses both underwriting systems. Barclay Butler Financial closes approx. 20-30% of its loans with Freddie Mac. That means you have a lot better chance getting your loan closed.
FHA allows you to buy a home with only 3.5% and a 580 credit score. Most lenders require 620-640 credit score, but there are lenders that will go down to a 580 credit score.
When you have a 580 credit score your debt to income ratios are limited, compared to a 620 credit score. Your maximum debt to income ratio is 50% with 2 compensating factors. It you have 1 compensating factor you cannot go above at 47%. If you have no compensating factors you will not be able to go above a 43% debt to income ratio. There a 5 compensating factors the FHA allows. They are 3 months of your mortgage payment, enough residual income, no other debts besides your new mortgage, rent is same as your new mortgage payment & you have other income that we are not using to qualify you. If your debt to income ratio goes above a 43% with a score below 620 you will have to do a manual underwrite. Barclay Butler Financial does these loans. # 580creditscore, #3.5%down.