Fannie and Freddie's new home loan rules - you need lots of cash

We've all heard that it's getting harder and harder to qualify for a new loan, but no one's been certain exactly what Fannie Mae and Freddie Mac have set as rules in this new financial environment.

In a story in today's Wall Street Journal, we find that a borrower needs a credit score of at least 740 to qualify for a home-purchase loan with a 20% down. With that excellent credit score the borrower could qualify for a loan rate of 4.75% plus a 1% origination fee. If a borrower's credit score is below 680, then the best he or she could do would be a 4.75% loan with 2.5% in fees.

So what do you need in cash to buy a home today using Fannie or Freddie? if you've got a score of 740 or higher and want to buy a home valued at $200,000, you would need to have $40,000 to put down on the home plus another $2,000 for fees before you could even think about buying. If your credit score was below 680, you would need the $40,000 down plus $5,000 in fees.

The only way you might find a way to purchase a home with less cash up front would be to work with the FHA. The FHA is still accepting borrowers with low credit scores and down payments of as little as 3.5%.Fannie and Freddie say they are focusing on keeping people in their homes and not on making new loans. The problem is that since Frannie and Freddie are the only players in town for most mortgages, since private mortgage money dried up, there's not much to go around to help people who want to buy a home. The only way we're going to stop the downward spiral in home prices is to reduce the backlog of homes on the market.

While I'm not advocating that Fannie and Freddie make risky loans, I am questioning whether the cash needed up front is realistic to help get homes sold and off the market. Would a 10% down be enough to secure the loan? That might make new loans more affordable and get more homes off the market.

We've seen mortgage applications rise, but hear that many people are being turned away because they don't qualify. Obviously there are people ready to buy, so we need to find a happy medium between safe lending and helping to stabilize the housing market and its pricing.

Lita Epstein has written more than 25 books including the "Complete Idiot's Guide to Improving Your Credit Score" and "The 250 Questions You Should Ask About Buying Foreclosures."
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