Freddie Mac Boosts Loan-to-Value Ratios for 2-4 Unit Homes to 95% in 2025
A Game-Changer for Homebuyers
Freddie Mac, a leading U.S. mortgage financier, announced on September 3, 2025, that it will raise the maximum loan-to-value (LTV) ratio for 2-4 unit primary residences to 95%, effective for mortgages with settlement dates on or after September 29, 2025. This bold move, reported by The Truth About Mortgage, aims to make homeownership more accessible, particularly for first-time buyers and those eyeing multi-unit properties for “house hacking.”
Details of the New LTV Policy
What’s Changing?
The new policy allows borrowers to finance up to 95% of the value of 2-4 unit primary residences, up from previous limits of 85% for conventional loans unless paired with secondary financing. This applies to:
- Home Purchase Loans: Enabling buyers to secure larger loans with smaller down payments (as low as 5%).
- Rate-and-Term Refinances: Allowing homeowners to refinance without cash-out, aligning with the new 95% LTV cap.
- Total LTV (TLTV) and Home Equity TLTV (HTLTV): Borrowers can pair a first mortgage with a second mortgage, like a Home Equity Line of Credit (HELOC), up to a combined 95% LTV.
Cash-out refinances, however, remain capped at 75% LTV for 2-4 unit properties, reflecting caution amid high home prices and economic uncertainty. The policy excludes manually underwritten mortgages and super conforming mortgages for high-cost areas.
Why Now?
Freddie Mac’s decision comes amid a challenging housing market with median home prices at $412,300 in Q2 2025 (National Association of Realtors) and mortgage rates hovering around 7%. The move aligns with:
- Affordability Push: Lowering down payment barriers to attract first-time buyers and boost homeownership, especially for multi-unit properties popular for generating rental income.
- Market Competition: Competing with FHA loans (up to 96.5% LTV for 2-4 units) and non-QM lenders offering flexible terms.
- Potential IPO: Speculation around Freddie Mac and Fannie Mae’s possible initial public offerings may be driving efforts to expand market share.
Impact on U.S. Homebuyers
Opportunities for Buyers
- Lower Down Payments: A 95% LTV means a buyer purchasing a $500,000 duplex needs only a $25,000 down payment instead of $75,000 at 85% LTV, saving $50,000 upfront.
- House Hacking Appeal: Multi-unit properties allow owners to live in one unit and rent out others, offsetting mortgage costs. The policy supports this trend, popular among younger buyers, as noted by Clients2Homeowners.
- Increased Access: The change benefits low-to-moderate-income borrowers, especially through Freddie Mac’s Home Possible program, which caps income at 80% of the area median income (AMI) and requires a 620 credit score.
Risks and Considerations
- Higher Debt Levels: A 95% LTV increases monthly payments and mortgage insurance costs, potentially stretching borrower budgets in a high-rate environment.
- Market Frothiness: Critics, including The Truth About Mortgage, warn that loosening LTVs during a period of high home prices could exacerbate affordability issues or echo pre-2008 lending risks, though safeguards like income caps and credit requirements mitigate this.
- Limited Scope: The policy doesn’t apply to cash-out refinances or high-cost area loans, potentially limiting its impact in markets like San Francisco or New York.
Expert and Public Reactions
Analysts are divided. David Smith of Cushman & Wakefield sees the move as a “strategic play to boost demand in a sluggish market,” while posts on X, like @HousingInsider, express concern that “higher LTVs could fuel price bubbles without addressing supply.” Others, like @MortgagePro, praise the flexibility for first-time buyers, noting, “House hacking just got easier.” The Fox Business report on Freddie Mac’s 2025 loan limit increase to $806,500 suggests broader efforts to support buyers, but Routledge’s comments on Canada’s housing resilience highlight the importance of strong underwriting, which Freddie Mac maintains through automated systems and credit standards.
Future Outlook
The 95% LTV policy could drive home purchase demand, particularly in urban areas with abundant multi-unit properties. However, its success depends on:
- Borrower Discipline: Home Possible’s requirements, like homeownership education for first-time buyers, ensure responsible lending.
- Economic Conditions: Rising rates or tariff-driven inflation could dampen affordability, offsetting LTV benefits.
- Supply Constraints: With for-sale inventory at historic lows (3.2 months’ supply per NAR), higher LTVs may not fully address access unless paired with increased housing construction.
If sustained, the policy could boost Freddie Mac’s market share and support its “Insurance for All by 2047” vision, aligning with broader affordability goals. However, a potential Supreme Court ruling on related economic policies, like tariffs, could influence housing market dynamics.
Conclusion
Freddie Mac’s decision to raise LTVs to 95% for 2-4 unit primary residences is a bold step to enhance affordability and support house hacking, particularly for first-time and low-income buyers. While it lowers financial barriers, risks like higher debt and market overheating require careful monitoring. As the policy takes effect on September 29, 2025, homebuyers should weigh the benefits against economic uncertainties, leveraging programs like Home Possible to secure their financial future.