What is Fannie Mae?
Fannie Mae, short for Federal National Mortgage Association, is an agency backed and sponsored by the government, which basically makes mortgages available to the small and medium-income category of people; that is to say, the agency itself does not give any loans but buys mortgages from different lenders and thus provides them with money to eventually invest in other assets and markets.
The main purpose of Fannie Mae is essentially to bring instability and liquidity in the mortgage lending world and allowing people to have access to affordable financing and refinancing options available to them.
Being a government-sponsored organization, it ensures that it helps in maintaining the liquidity in the market by ensuring regular buying of the loans from the lending institutions, all ethically and by following the recommended protocols.
How does it work?
Originally formed by the Congress government in the late 1930s, this government-sponsored organization was created with an intention to boost the lending market by working as a refinancing mortgage company and working its way through the secondary market.
It works on a very simple model. It buys the loans and mortgages of the lenders, mortgagers, institutions, banks, or any other lending organization, which nonetheless transfers lending risks to itself.
The whole transaction of buying loans from lending organizations helps bring in more liquidity to such organizations. In addition, it helps them provide more loans to the public, eventually bringing liquidity in the market.
You may understand that this does not mean that the lending organizations can simply get into any unethical practice and keep giving any loans to the public and institutions. However, they need to follow and adhere to strict guidelines and follow ethical lending practices.
Who is eligible for Fannie Mae?
Fannie Mae, as a part of the secondary mortgage market, mainly deals and targets the lending institutions such as brokers, banks, credit unions, and such kinds.
Now, one needs to check the eligibility criteria with Fannie Mae to understand who is eligible to apply for refinancing loans and mortgages from Fannie Mae.
Before you go ahead to apply and take a Fannie Mae loan, you can get your credit scores checked and calculated as on the time of applying for a Fannie Mae loan.
Someone having a credit score of 620 or more from the credit bureaus specified by the organization will usually qualify for a Fannie Mae loan.
However, if you do not qualify for a lower score, there is always an option to work your score up, which can be done by making timely payments and paying down the debts.
The reader may note that simply having a good score may not be enough. One needs to be eligible on the below points as well:
- Debt to income ratio (can be calculated as a percentage of total income earned versus total debt payment);
- Employment/business status and history of the borrower;
- Assets and liabilities statement/document.
What is the maximum Fannie Mae loan amount?
All good things come within boundaries. Similarly, Fannie Mae loans also come with limits. Fannie Mae has specified maximum loan amounts for different states based on various criteria.
It offers loans with an upper limit ranging from $ 0.5million to $ 1.5million, the range being wide based on the state you apply the refinance. Note that these limits are for 2021, and the same are subject to change year on year.
A detailed list of loan amounts available through Fannie Mae is readily available at the Fannie Mae website and can be referred to in order to know the exact eligible amount basis the state.
Link to the website: https://www.fanniemae.com/
Benefits of Fannie Mae
There are various benefits of Fannie Mae loans. Below given are certain primary benefits of the same:
- Small and medium-income range people may get the facility to avail of loans.
- Extremely competitive rate of interest compared to other mortgage lenders.
- Low down payment options.
- The market for lenders to sell their loans and get capital and liquidity in its hands.
- Better interest rates on loans when going for refinancing options, eventually reducing your monthly repayment amounts.
- The borrower may be able to modify the loan terms to avail interest rates suitable to him, extend reduce the tenure of the loan, or maybe even add up the balances due previously to the principal and repay it in the future monthly payments.
- May get interim relief from any due payments, which helps in temporary relief and temporary solution to any cash issues.
- It buys conventional loans from lending entities.
- Ready market availability for lenders to sell their loans and get liquidity.
- With affordable interest rates and comparatively lower down payment options, it helps provides loans to small to medium income range populations.
- Arrangements can be worked out to restructure the loans, such as to reduce the monthly payments or halt the payments for time being in case of borrowers’ liquidity concerns, based on case to case basis.
It would be right to say that Fannie Mae is a leading solution to financing and refinancing options to the lending market. Their solutions surely help in the sustenance of the market and make home affordability a reality for many people.
To conclude our discussion, it would be right to say that Fannie Mae acts and works in the secondary market such that it may be providing loans directly to individuals and the public but buys the loans from the lending institutions only, thus giving them enough capital in hand to further provide loans to people.
This is a guide to Fannie Mae. Here we also discuss the definition, purpose, working, and eligibility of Fannie Mae along with the benefits. You may also have a look at the following articles to learn more –