We work with all major agency programs, including Freddie Mac and Fannie Mae, as well as alternative lending solutions. Understanding the differences between these programs can help Michigan borrowers structure their loan applications correctly. One asset that sometimes comes into play is life insurance cash value. However, there are important rules to understand, especially when using a Freddie Mac mortgage.
Freddie Mac allows borrowers to use the cash value of a life insurance policy as an asset toward Closing costs, Down payment funds, and reserve requirements. But there is an important restriction. The borrower must be the owner of the life insurance policy. Being listed as a beneficiary is not enough. Freddie Mac requires direct ownership of the policy to count the asset.
Even when the borrower owns the policy, Freddie Mac only allows the cash surrender value to be counted. This means:
- The policy must have an accumulated cash value
- The lender will document the cash surrender value, not the face value of the policy
- Only that amount can be applied toward qualifying assets
For example, if a policy has a $500,000 face value but only $40,000 in cash surrender value, the usable asset amount is $40,000.
How This Differs From Fannie Mae
This is where agency guidelines start to differ. Fannie Mae offers greater flexibility in certain situations and may permit the use of life insurance assets, even when the borrower is not the direct owner of the policy, depending on the structure and documentation. Because of these differences, choosing the right agency program is extremely important. A loan that may not meet Freddie Mac guidelines could still meet Fannie Mae guidelines.
Michigan mortgages done right, with strategy, experience, and the right loan program.
