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Fannie Mae Loans: A Guide for Home Buyers

What Exactly Is Fannie Mae?

Fannie Mae is a type of mortgage loan made to ensure good flow and affordable mortgage financing. This program makes homeownership available for millions of US citizens. Let’s take a look at how these loans work and what are some key requirements in order to qualify.

Are you considering taking out a Fannie Mae or any other type of mortgage loan to purchase a house? If the answer is yes, there are a few things you should think about before you make any decision.

Fannie Mae home loans are offered to both first-time home buyers and repeated buyers. With that being said there are different criteria to be met depending on the group you belong to.

Firstly, all borrowers seeking this loan must have a credit score minimum of 620 in order to be eligible. Besides this, all borrowers need to have a good steady income and employment history.

This type is only available if you plan on taking a conventional loan. If you are planning to take FHA or VA loan to finance the purchase of a home you will not be able to take out this one as well. Any government-backed-up loan program is not compatible with the Fannie Mae program.

Lastly, it’s important to understand that these loans have different fees associated with them. Lower interest rates can be tempting but origination fees and closing costs can add up to the price.

Don’t forget to ask the lender about this so there are no surprises down the road.

What Exactly Is Fannie Mae?

Before applying it’s essential to know exactly what is Fannie Mae loan and how it works.

Fannie Mae is a government-sponsored enterprise (GSE) that was created in 1938 to help stimulate the US housing market by making mortgage financing more accessible and affordable for everyone. In today’s world, these loans play a big part in providing liquidity and stability during economic difficulties.

It is a type of a mortgage that is backed by the GSE. What this means is that if you default on this loan, they will step in to cover the losses. Considering there is a guarantee, a lender will be open to give borrowers a lower interest rate.

Fannie Mae is conforming loan same as Freddie Mac. They both work on the pretty much same principle. Both are good mortgage loan options with low-interest rates. The main difference between Fannie Mae and Freddie Mac loans is where they purchase their assets. Fannie Mae chooses large banks while Freddie Mac buys them from smaller banks and credit unions.

Qualifying and then taking out these loans means you can use secured funds not just for buying a house but also for refinancing.

How Do Fannie Mae Loans Work?

Now that you know what they are it is important to understand how Fannie Mae loans work.

They purchase loans from approved lenders, and then packages them into securities and sells them to investors. The proceeds made from these sales are used for funding new mortgage loans. This cycle of loan purchasing and selling helps to create constant funding for the mortgage market.

These loans are attractive offers for buyers because of the low-down payment options and flexible credit requirements they have.

Loans like this one are primarily a type of a mortgage loan but if you, for example, have student debt you can take out this one and refinance it in order to pay it off making it a Fannie Mae student loan.

There is also the possibility of taking out a Fannie Mae construction loan if you are interested in building a new single-family home. This will make the whole process easier because there is no huge down payment.

If you are considering taking out this loan, be sure to talk to your lender first about all the different offers available to find the best one.

Fannie Mae Loan Requirements

In order to even have a chance to get these loans, there are a few things you should think about first before applying. Some of the Fannie Mae loan guidelines you should know about if you are a first-time home buyer are:

  • Have a credit score of at least 620.
  • Have a debt-to-income ratio of 50% or less.
  • Meet other eligibility requirements set by Fannie Mae.

If you meet the requirements set above there should be no problems with your application. But before you do so don’t forget to budget payments into your monthly plan. Additionally, they often require borrowers to pay private mortgage insurance (PMI) so all of this can add up quite a bit to the overall cost.

Before signing anything do your research and understand all the terms and conditions associated with these types of a loan.

How to Apply for a Fannie Mae Loan?

After reading this detailed description if you decide this is the right type of mortgage for you here is how to apply for a Fannie Mae loan. The first step is to find a participating lender to contact. Fannie Mae doesn’t lend money directly to the borrowers. You can find approved lenders offering this loan on the Fannie Mae website.

Once you find it, you will need to submit the necessary documents required for an application. This usually means various bank statements and recent tax returns. After that, your lender will submit a loan application to Fannie Mae for approval.

In case they approve it, your lender will help you finalize everything and close a deal on a house that you chose.

Is Fannie Mae Loan a Good Option?

There are multiple lenders offering this loan such as banks, online lenders, and credit unions. The terms of a loan can vary depending on the lender you choose but they usually last about 30 years and have fixed interest rates. What this means is that you can easily fit everything in your monthly budget without worrying about rates going up and down thought-out the years.

One of the key benefits of this loan is that you can qualify and get lower interest rates than on a traditional mortgage. Lower rates are due to this loan being backed up by the government so the lenders will see them as low risk and be interested in funding them.

As for Fannie Mae loan limits they change year by year so you should check on their website beforehand.

Even if you don’t need a traditional mortgage Fannie Mae offers mortgage insurance and other forms of financial assistance for homeowners and homebuyers.

Bottom Line

In regards to everything we talked about above, a Fannie Mae loan can be a great option for potential homebuyers looking for a good deal. With low-interest rates and good terms, it definitely is something you should consider as a potential mortgage option. Even if you are not in the market to buy a house don’t forget that these funds can be used for refinancing an existing home loan.

But same as any other loan type this one also comes with some risks you should take into consideration. They have government backup but it still means you can lose your house if something goes wrong.

With that being said be sure to do proper research and understand how everything works before signing anything. 

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