Fannie Mae Home Loans
Fannie Mae plays a critical role in the world of mortgages and homeownership. However, many homeowners may not even realize their mortgages are backed by the company. This is because Fannie Mae mostly interacts with lenders and investors and not directly with borrowers. As a result, homeowners may never interact with the government-sponsored enterprise. Because it mostly operates behind-the-scenes, it can be difficult to realize how important this organization is to the entire housing market. Nevertheless, if Fannie Mae mortgages were to disappear, it would mean bad news for many homeowners. As a potential homeowner, learning the role this company plays in the mortgage economy could shed light on how it affects you.
If you are interested in getting a mortgage, you should learn about how Fannie Mae impacts your mortgage options. The sections below explain how to apply for a Fannie Mae-backed home loan and what the benefits are. You will also learn what role the company plays in the mortgage economy and how it operates to make homeownership accessible.
Applying For a Home Loan
The process of applying for a home loan backed by Fannie Mae is similar to the process of applying for any other home loan. However, there are additional requirements you must keep in mind. For example, the company will only purchase conforming home loans. In most counties, a conforming loan refers to a loan of no more than $453,100 for a single-family property. In select high-cost counties, a loan can be more than $1 million and meet the conforming qualifications. Anything over the price point in a particular county would be classified as a “jumbo loan” and would not meet eligibility requirements. Additionally, Fannie also sets income and credit score requirements for mortgages to qualify for backing.
To begin, search for a lender approved to sell to Fannie Mae loans. You can choose a mortgage broker that offers Fannie Mae-backed mortgages or go straight to a financial institution. Either way, expect to supply numerous financial documents proving your income and work history. Documents like your W-2, tax returns and pay stubs will be required to complete the underwriting process. Once the underwriter finishes processing your application, your institution will issue a final decision. If you like the terms of the mortgage, you can sign the contract and commit to homeownership. If not, you can renegotiate the contract or reach out to a different lender. When your mortgage is approved and you sign the paperwork, you have completed the process. Your lender will sell the mortgage to Fannie Mae if it meets the qualifications. You can see whether the company owns your mortgage online.
Learn more about applying for a Fannie Mae loan by downloading our comprehensive guide.
Benefits of a Fannie Mae-Backed Mortgage
There are numerous benefits to having a loan backed by Fannie Mae. One of the most important and direct benefits of Fannie Mae (FNMA) loans is on your interest rate. Because these loans pose less of an interest to lenders, you will typically receive a lower interest rate. The difference can be as much as 1 percent, which will lead to substantial savings over time. With a lower interest rate, you will have a lower monthly payment, and more of your payment will go toward your principal. That means by the time you amortize your mortgage, you will have paid several thousand dollars less than someone with a higher interest rate.
Additionally, you have more potential refinancing options available to you if Fannie Mae has purchased your home loan. For example, you may qualify for the Home Affordable Refinance Program. This program is meant for homeowners who have kept up with payments but watched the value of their home fall. It allows mortgage holders to complete the refinance process for their mortgage with more agreeable terms, including a lower monthly payment and interest rate.
If you do not qualify for the HARP program, you may instead qualify for the high loan-to-value (LTV) refinance option. This program is for homeowners whose loan represents a large portion of the total value of the home. It creates refinancing options to make the mortgage more affordable for such homeowners. In other words, Fannie Mae works to create new solutions to keep homeowners in their home. The entity reduces the total number of foreclosures by giving homeowners steps to take to prevent foreclosure from occurring.
Finally, a Fannie Mae-backed loan may have the option of forbearance. A forbearance option allows you to temporarily stop or lower your monthly mortgage payments during times of economic hardship. For example, if you lose your job, you may be able to request forbearance while you search for employment. A forbearance does not harm your credit score as significantly as foreclosing on your home would, making it a safer option. Additionally, it allows you to retain savings for critical expenses during times of financial hardship. In 2018, Fannie Mae simplified the process of seeking forbearance to make it easier to apply for.
How Fannie Mae Operates
Fannie Mae does not operate directly with borrowers and does not issue loans itself. Instead, it operates in the secondary mortgage market, buying mortgages from lenders and packaging them into mortgage-backed securities (MBS). As MBSs, the mortgages are then sold to investors around the world, who consider them similar to exceptionally secure bonds. By buying mortgages from lenders, Fannie Mae enables banks and financial institutions to retain spending money. A mortgage, according to its standard terms, would take up to 30 years to pay back. If a bank does not sell the mortgage, it will not reclaim that liquidity for 30 years. By selling mortgages to Fannie Mae, banks can continue to free up funds and issue more mortgages to homeowners.
Fannie Mae used to operate as a government operation. By 1968, it had been turned into a privately owned company with the ability to buy any mortgage that fit its qualifications. However, in the 2008 Great Recession, both Fannie Mae and Freddie Mac came under threat. To preserve the institutions, the governments took control of both. Today, Fannie Mae is operated by the U.S. government, and profits are sent to the U.S. Treasury to pay for government programs.