Fannie Mae Home Loans

Are you familiar with Fannie Mae? It might sound familiar if you've already begun digging into the mortgage process. Fannie Mae's official title is the Federal National Mortgage Association (FNMA), and it's a government-sponsored entity that encourages home ownership by increasing the availability of funds for mortgage lenders.

What is Fannie Mae?

Fannie Mae is one of two government-sponsored enterprises and purchasers of mortgages (the other being Freddie Mac). Fannie Mae and Freddie Mac buy loans from banks and mortgage companies, creating cash flow so they have enough funds to make new loans. The main difference between the two is that Freddie Mac mostly purchases loans from smaller banks and mortgage companies. Meanwhile, Fannie Mae purchases their loans from larger commercial banks.

How Does Fannie Mae Benefit the Housing Market?

Fannie Mae does more than just benefit mortgage companies and other financial institutions—it also benefits consumers. By purchasing loans, Fannie Mae increases liquidity for banks and mortgage companies, freeing up cash to create new loans for new borrowers. Fannie Mae makes more lending money available, which helps keep the real estate market afloat and housing more affordable.

Fannie Mae Guidelines

Fannie Mae is one of the largest purchasers of mortgage loans, but it doesn’t buy every type of mortgage.

Fannie Mae sets specific guidelines and will only buy mortgages that meet them. Any mortgage that’s held as an investment or re-sold must conform to Fannie Mae‘s guidelines. These are known as conforming loans.

In 2021, the maximum loan limit for conforming loans is $548,250 for a single-family, one-unit property, and $822,375 for a single-family, one-unit property in high-cost areas. Conforming loan limits are based on location, and borrowers who need a larger loan must get a jumbo loan.

According to Fannie Mae's guidelines, the minimum down payment requirement for a conforming mortgage is 5% for a standard conventional loan, and 3% for Fannie Mae’s HomeReady mortgage program (moderate-income borrowers only).

Also worth noting, if you put down less than 20%, you'll be required to pay private mortgage insurance (PMI). This insurance protects lenders if a borrower can't make their mortgage payments. Fannie Mae’s guidelines also limit a borrower’s debt-to-income ratio (DTI) to 43%.

Applying for a Conventional Loan

With so many mortgage loan options available, lean on the experts to help you make the best choice. Our experienced loan officers are available to help you explore your home purchase options--whether you're interested in an adjustable-rate mortgage, a fixed-rate mortgage, refinancing, or a low down payment. Give us a call today to get started.

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