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The Federal Home Loan Mortgage Corporation, more commonly referred to as “Freddie Mac,” is offering a new means of home financing for borrowers who don’t have a significant credit history. While Freddie Mac doesn’t lend directly to consumers it is their job as a government-sponsored enterprise to try and support the U.S. housing market by insuring affordability and accessibility. Traditionally, a strong credit score, coupled with sufficient monthly income, is necessary in order to secure a mortgage for a home. Since the mortgage crisis of 2007 there has been a drastic shift away from sub-par lending, the practice of lending to potential homebuyers with marginal or less than average credit scores. This can make it tricky for buyers who may not have a bad credit score but who just don’t have credit in general. For instance, a buyer who paid cash for their car and doesn’t have any lines of credit, like a credit card. While this seems like a fiscally responsible approach to finances, it can backfire when credit is necessary in order to obtain a loan for a larger purchase, such as a home. First-time homebuyers can be particularly vulnerable in this position since they don’t have a past mortgage in their credit history.
In the past there has been a tedious loophole that allows potential homebuyers to work around a lack of credit. Lenders have been able to manually underwrite mortgage loans using payment references, particularly records that indicate timely monthly rent paid to a landlord. Freddie Mac has automated this process with the use of their Loan Product Advisor, allowing for a streamlined and more painless assessment of borrowers without credit history. This process offers an immensely more efficient (and thus effective) means of assessing a potential homebuyer and saying with a degree of certainty that Freddie Mac would potentially purchase the loan. According to David Lowman, executive vice president of Freddie Mac’s Single-Family Business: “We're committed to supporting responsible lending and improving access to credit for all borrowers, including first-time home buyers, low- and moderate-income buyers and under-served populations. It's important that we keep pace with the evolving needs of the U.S. market and help support sustainable home ownership. By allowing lenders to more easily assess their overall underwriting risk, we encourage them to take advantage of our entire credit box to originate more loans in a safe and secure manner.”
This new process should open the door to homeownership to a whole new population of potential homebuyers. Buyers without credit will be potentially eligible for home mortgages beginning in June of this year. If this change in the mortgage process increases your potential for a future mortgage, now is a great time to start the process of looking at the new construction housing options available in the Charleston area. New construction can be the ideal choice for first-time homebuyers, offering affordability, an array of design & style choices easy home maintenance.
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