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When you begin exploring your mortgage loan options prior to purchasing a home or refinancing your mortgage loan, you will learn many new terms such as conventional loan, Fannie Mae, Freddie Mac, or conforming loan. 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 market. It is important to understand how Fannie Mae and Freddie Mac impact your home loan options.
What is a Conventional Mortgage Loan?
A conventional home loan is a mortgage loan that is not guaranteed by a government agency like the FHA or the 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-to-income ratio, incomee 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 when shopping for the best mortgage loan for your circumstances.
What are Fannie Mae and Freddie Mac?
Fannie Mae, the nickname for The Federal National Mortgage Association, and Freddie Mac, the nickname for The Federal Home Loan Mortgage Corporation, are Government Sponsored Enterprises or GSE. A GSEs is quasi-governmental organization designed to influence the availability of mortgage credit. Fannie Mae and Freddie Mac were created to ensure the availability of affordable home loans to all Americans. They do not make mortgage loans themselves. Rather, they establish the guidelines for financial institutions that offer low-risk loans for the purpose of buying a home or refinancing a mortgage loan.
How are Fannie Mae and Freddie Mac the Same?
Fannie Mae and Freddie Mac have the same mission, but serve different financial institutions in the mortgage industry. Fannie Mae and Freddie Mac were established to ensure mortgage lenders had enough cash to provide affordable mortgage loan products to the housing market in the United States. Their mission is to make sure that banks, credit unions, and other mortgage lenders have easy access to funds, so that they can offer low-risk loans to homebuyers.
How do Fannie Mae and Freddie Mac Differ?
Fannie Mae was created as a response to the housing crisis during the Great Depression. It works to ensure affordable mortgage 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. Thrift banks are financial institutions that accept deposits and offer home loans, but limit 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 or referred to as MBS. When MBS are sold, it frees up cash in the mortgage industry that allows for more mortgages to be offered at affordable interest rates.
Why is this Important?
Your mortgage application is where these guidelines impact your experience in qualifying for a home loan. An experienced mortgage loan officer can help you submit the best application for your particular circumstances, and ensure you get the best mortgage loan possible.
Let's say you are a self-employed borrower. The right lender can help you choose the best mortgage loan 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 rate possible.
If you are looking to purchase a multi-unit property or investment property, an experienced mortgage loan officer can help you understand down-payment requirements and refinancing options available from either Fannie Mae or Freddie Mac. Once the options are presented, you can choose the optimal product for your property management goals.
How Do I Make the Best Choice Between Conventional Mortgage Loans?
Working with an experienced lender and mortgage loan officer is your best bet in choosing the ideal mortgage loan 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 loan options and make the best financial decision possible.
We'll help you choose the right loan program and guide you through the application process with ease.
Fannie Mae and Freddie Mac both offer a 3% down payment program for home loans, or 97% LTV for mortgage refinancing. Have your licensed loan officer talk to you about DU and LPA to find out how you can take advantage of the agency that fits your home loan circumstances.
There are many reasons to refinance your mortgage loan such as to reduce your monthly mortgage payment, reduce your mortgage interest rate, or reduce your term.
A cash out refinance can help with lowering your overall monthly payments. Cash out of your home's equity for home renovation, debt consolidation, or any other reason.
Getting mortgage financing on an investment property is easy. Most lenders only require 15% down payment. Find out more about investment property loans.
How much can you borrow on a conventional home loan? Fannie Mae and Freddie Mac limit loan amounts on mortgage loans. Learn about conforming loan limits.
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