A poor credit rating is perhaps the biggest obstacle to getting a mortgage to purchase a new home. And even if a homebuyer with a low FICO score qualifies for a home loan, the mortgage has a higher interest rate. Thankfully, Freddie Mac offers Affordable Merit Rate Mortgages.
Affordable Merit Rate Mortgages give homebuyers with a low credit score the chance to qualify for a home loan, while also earning the right to pay a lower interest rate.
Affordable Merit Rate Mortgages
The Affordable Merit Rate Mortgage is a subprime loan offered by Freddie Mac aimed at benefiting homebuyers with a poor credit history.
With an Affordable Merit Rate Mortgage, borrowers have a four-year period to make 24 consecutive on-time mortgage payments in order to qualify for a one-time, one percent interest rate reduction.
If borrowers are late on one or more mortgage payments during the first 24 months, they will be re-evaluated on the 36- and/or 48-month anniversaries of the payment due date. Borrowers who meet the eligibility requirements will automatically receive the one-time rate reduction effective the month following the eligible anniversary date.
Borrowers Benefit from Affordable Merit Rate Mortgages
The benefits to borrowers of the Affordable Merit Rate Mortgage, as stated by Freddie Mac, include:
- Delivers home financing at a rate that may be lower than other higher-cost financing options.
- Provides an additional rate reduction incentive for on-time payments that reduces the need to refinance and incur associated costs.
- Helps establish a record of good credit management.
Of course, the biggest benefit is the possibility for the interest rate to be lowered by a full percentage point. A borrower with a 30-year fixed rate mortgage that is lowered 1%, can expect his monthly payment to decrease by well over $100 per month.
Lenders Benefit from Affordable Merit Rate Mortgages
From a lender’s perspective, there are a number of great reasons to work with borrowers and suggest an Affordable Merit Rate Mortgage. This loan type allows lenders to approve more buyers, retain more buyers due to the automatic rate reduction, and expand into working with borrowers with less-than-perfect credit.
The benefits to lenders of the Affordable Merit Rate Mortgage, as stated by Freddie Mac, include:
- Qualify more borrowers with a less-than-perfect credit history.
- Retain more customers in your servicing portfolio with the rate reduction incentive.
- Use Loan Prospector to reduce costs, streamline your origination process, standardize your product line and obtain creditworthiness representation and warranty relief.
- Further expand your A-minus marketing efforts to an additional borrower base.
Qualifying for an Affordable Merit Rate Mortgage
As a borrower, you won’t need a perfect credit score to qualify for an Affordable Merit Rate Mortgage, but Freddie Mac has specific guidelines that must be met.
To see if you qualify, contact a mortgage broker to review your finances and determine whether you qualify for an Affordable Merit Rate Mortgage.
Marimark Mortgage is a mortgage broker serving all of Florida, Virginia, and Pennsylvania.
We also specialize in conventional home mortgages, FHA, VA and USDA mortgage options, refinance loans, and reverse mortgages. We’ve also worked extensively with a variety of refinancing options to help clients lower their payments on their home.