You have probably heard of Fannie Mae, especially in relation to the housing crisis, but do you know what Fannie Mae actually does? Fannie Mae, also known as the Federal National Mortgage Association (FNMA), is a government-sponsored enterprise that was created by Congress in 1938 to stimulate the housing market by making home loans more available to low- and moderate-income buyers.
Fannie Mae is not a lender, so it does not provide or originate home loans to borrowers. Instead, Fannie Mae buys and guarantees mortgages on the secondary market. Fannie Mae and its sibling enterprise, Freddie Mac, are the largest buyers of home loans.
One of Fannie Mae’s most important roles is guaranteeing mortgages that meet its underwriting standards to boost liquidity in the market for borrowers. Fannie Mae guarantees loans for single-family homes up to the conventional loan limit but only when loans are made by an eligible lender that agrees not to practice subprime lending practices. To partner with Fannie Mae, lenders must also go through an application process. In exchange, Fannie Mae assumes risk associated with borrowing and protects lenders when homeowners default on their mortgages.
Fannie Mae Loans
Fannie Mae doesn’t make loans nor play a role in the primary loan market, which means all Fannie Mae mortgages are from outside lenders. Many homeowners do not even realize they have a loan guaranteed by Fannie Mae, although it is possible to check with Fannie Mae. If your loan is backed by Fannie Mae, you may be eligible for benefits like the Home Affordable Refinance Program (HARP).
To qualify for a Fannie Mae mortgage and the perks that come with it — such as a lower interest rate and access to refinance programs — you will need to use an approved lender. Fannie Mae loans must also meet strict guidelines:
- Residential home loan
- Conforming loan limit ($417,000 or $625,500 in high-cost areas)
- Debt-to-income ratio of 36% or lower
- Credit score of 620 or higher
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