Once you begin exploring your mortgage loan options ahead of purchasing or refinancing a home, you will learn many new terms. Understanding these terms can help you make the best mortgage financing decisions for your situation.
Fannie Mae and Freddie Mac are the institutions that determine the requirements for low-risk loans in the conventional mortgage arena. It is important to understand how Fannie Mae and Freddie Mac impact your options for a home loan.
A conventional home loan is a mortgage loan that is not guaranteed by a government agency like the Federal Housing Administration (FHA) or the Veterans Administration (VA). Conventional loans must meet requirements that ensure the loan is low-risk. These requirements are set for financial indicators such as credit history, debt load, income levels, and down-payment amounts.
Fannie Mae and Freddie Mac set the rules that guide conventional mortgage requirements. Understanding each institution, its loan programs, and its requirements, is essential in making the best mortgage decision for your circumstances.
Fannie Mae (the nickname for The Federal National Mortgage Association) and Freddie Mac (the nickname for The Federal Home Loan Mortgage Corporation) are Government Supported Enterprises (GSEs). GSEs are quasi-governmental organizations designed to influence the availability of credit.
Fannie Mae and Freddie Mac were created to ensure the availability of affordable loans to lower-income Americans. They do not make mortgage loans themselves. Rather, they establish the guidelines for financial institutions that make low-risk loans for the purpose of buying a home.
Fannie Mae and Freddie Mac have the same mission, but serve different players in the mortgage industry.
Fannie Mae and Freddie Mac were established to ensure lending institutions had enough cash to provide affordable mortgage products to the housing market in the United States. Their mission is to make sure that banks, savings and loans, credit unions, and other mortgage lenders have easy access to funds, so that they can offer low-risk loans to home buyers.
Fannie Mae and Freddie Mac serve different markets in the mortgage industry.
Fannie Mae was created as a response to the housing crisis during the Great Depression. It works to ensure affordable loan products to low and middle-income buyers in the housing market. It does this by purchasing loans from commercial banks.
Freddie Mac also buys loans from what is called thrift banks. These are financial institutions that accept deposits and offer home loans, but do not offer other financial services or business loans.
Once a mortgage is purchased by Fannie Mae or Freddie Mac, it is held by the institution or bundled for resale. When bundled for resale, the mortgages are called mortgage-backed securities (MBS).
When the MBSs are sold, it frees up cash in the mortgage industry that allows for more mortgages to be offered at affordable interest rates.
Your mortgage application is where these guidelines impact your experience in qualifying for a home loan. An experienced mortgage professional can help you submit the best application for your particular circumstances, to ensure you get the best terms possible for your loan.
Let's say you are self-employed. The right lender can help you choose the best mortgage product with the right income calculation and help you organize the required tax documents. Having this level of advice will ensure you easily qualify for the best mortgage terms possible.
If you are looking to purchase a multi-unit property, an experienced mortgage professional can help you understand down-payment requirements and refinancing options available from either Fannie or Freddie. Once the options are presented, you can choose the optimal product for your property management goals.
These are just a couple of examples of the intricacies involved in borrowing money to purchase real estate.
Working with an experienced lender and mortgage loan officer is your best bet in choosing the ideal loan product for your circumstances.
The Fannie Mae and Freddie Mac guidelines and requirements are complicated and change frequently. You want to work with a mortgage industry professional to understand your options and make the best financial decision possible.
Fannie Mae/Freddie Mac - Make the Best Mortgage Decision.