Fannie Mae/ Freddie Mac vs. Private Lending

[Pranav Chunduru]

I am looking for lenders in my first House Hack. I want to know what the pros and cons are going to Fannie Mae for my loan vs the Private Lending route.

[Jason Wray]

Fannie Mae is usually the go to for more relaxed guidelines. If you have a multifamilyyou would want to use a true Protfolio loan program. Portfolio is similar to private money where you are using the Banks private funds for their NICHE programs. Also anything that may not fit traditional guide lines or has a higher DTI.

Portfolio is 15% down for SFR and any (2-4 Unit) multifamily, Fannie Mae is 15% for SFR and 20-25% down for 2-4 Units.

Hard Money/Private can have high closing costs due to broker fees and points.  Fannie/Freddie/Portfolio usually have buy downs to rates and No ponts unless you go through a small lender or broker.

[Andrew Postell]

@Pranav Chunduru thanks for your post here.  I read the post above and I want to make some clarifications here if you don't mind:

1. House Hacking - This means we are occupying the property.  If you are occupying a Single Family Home the Fannie/Freddie downpayment amount is 5%...and sometimes 3%...and sometimes even lower.

2. Fannie Mae and Freddie Mac - I would call these the most RESTRICTIVE loans out there.  Now if I can play by their rules the loan is better.  The rate is better, the down payment is better, but boy do they have tons of rules.  Fannie's rule book is over 1100 pages and Freddie's is over 2000+!  Just rules and rules and rules and rules.  It's annoying.  But if you can work with someone that knows the rules, and how to navigate them, you'll get a good loan.  But not everyone can fit into those rules.

3. Private Lending - Private Lending is NOT Portfolio Lending.  The entire concept to private lending is that it comes from a private person.  AND it's MORE flexible than Fannie/Freddie.  However, you'll pay for it in a higher rate, or more downpayment needed, or some other feature that isn't as good as traditional lending.  But the BEST, the ABSOLUTE best private lending comes from the people you know directly.  Those are the relationships that we don't really share.  And they probably wouldn't lend to a stranger anyway.  They lend to us...because they know us.  So in those scenarios, maybe they can be somewhat better in rates/terms.  But if it's not a personal relationship, then you will pay for it in the loan terms. 

To me, Fannie/Freddie is found everywhere.  That's a benefit.  Private lending is harder to find.  Fannie/Freddie will give you better terms.  Private will be more flexible.  That's the summary comparison. 

[Ryan Thomson]

Fannie will have lower interest rates.

Fannie will have lower downpayment. 

When you say Private Lending I'm curious what you mean? People often mean different things when they say this. 

[Scott Trench]

While there are exceptions to every rule, if you can, you want to use a QM loan (Fannie Mae or Freddie Mac insured) as a house-hacker. It's a huge advantage, will come with a 30-year fixed rate option, low interest rates, and low down-payment options. 

I'd stay away from private money until you have a flip/rehab project that can add serious value, and is not a primary residence/house-hack. Private / hard money is a last resort, but an option used all the time by experienced flippers and rehabbers. 

One other item - you might, as a house-hacker, want to research assumable mortgages. Can you take over the VA or FHA loan used by a homeowner selling a property, and take advantage of 3% interest rates on existing properties?

[Dennis Muno]

Quote from @Pranav Chunduru:

I am looking for lenders in my first House Hack. I want to know what the pros and cons are going to Fannie Mae for my loan vs the Private Lending route.

 Well Fannie Mae has relaxed guidelines.Every private lender will have their own loan options(downpayment %, interest rate, pre-payment penalties, etc). However, I will recommend you shop your multiple options and decide what works best for you.