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June 1 2022

How Fannie Mae and Freddie Mack Guidelines Impact Home Mortgages

The Secondary Market is a level of lending that buys and sells home mortgages. Fannie Mae and Freddie Mack are two private corporations that were created by the federal government  which are run privately, but backed by the government. Fannie and Freddie will both purchase loans from lenders and banks that lent out money to borrowers that purchased or refinanced their homes. However, banks and lenders cannot sell their loans to Fannie or Freddie unless the loans they offered meet the guidelines that Fannie and Freddie set.

Non-Qualified Mortgage Advantages

Since banks are very conservative with their money, and selling to Fannie Mae and Freddie Mack is a safe outlet, a bank will typically hold tightly to Fannie’s and Freddie’s guidelines, and to even stricter guidelines sometimes. Lenders, on the other hand, not only have “Agency” loan programs that follow Fannie and Freddie guidelines, but many lenders also have alternative loan programs that follow looser guidelines, which open the door to owning a home to many other potential owners. These looser guideline loans are called Non-Qualified mortgages, which in short mean that they do NOT qualify for Fannie Mae and Freddie Mack.

Borrowing a Home Loan For a New Home Purchase

Every loan has guidelines that must be met. Since a home is a very large investment, these guidelines exist to protect consumers from borrowing beyond their ability to repay a loan. Oftentimes, however, the Fannie and Freddie guidelines are so strict, that people who can afford to own a home, still don’t meet their guidelines.Talk to a mortgage broker, they have many other options that banks don’t have because they allow alternative guidelines. Furthermore, even when a broker can’t help, they often have work partners that can help with credit repair or other services to get you on track with minimum standards of what’s needed to borrow through even non-qualified programs.

For more understanding on guidelines and home loan basics, check out the Resources tab on the website.

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