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When buying a Southern California home, most people talk about interest rates, how much to save for a down payment, and loan pre-approval. But what happens with your home loan after you purchase your property? Some companies purchase loans from mortgage lenders on what is known as the secondary market. Two of these companies are Fannie Mae and Freddie Mac. This week, I’ll be discussing how the former operates.
Fannie Mae Explained
A Little Background
During the Great Depression, everyone struggled. Homeowners. Non-homeowners. Businesses. Banks. As part of FDR’s New Deal, Congress founded the Federal National Mortgage Association (aka “Fannie Mae”) in 1938. Instead of providing direct funding to borrowers, this organization bought existing mortgage loans from lenders. In turn, this freed up money for banks to offer up mortgage loans to more borrowers. Currently, Freddie Mac and Fannie Mae represent the two largest operators in the secondary mortgage market.
What Does Fannie Mae Do?
Fannie Mae takes these loans that it buys from lenders and turns some of them into mortgage-backed securities. These MBS are then sold to investors. Additionally, they provide counseling and financial programs that help low to moderate-income buyers purchase their homes. Their Home Ready program (geared primarily towards first-time home buyers) backs loans with as little as 3% down. Their 97% LTV program (aka “Conventional 97”) also backs loans with 3% down for home buyers with a slightly higher income level than those in the Home Ready program. If you currently own a home with considerable equity, their ReFi Now program helps you use that equity to lower your monthly housing costs even with a debt-to-income ratio as high as 65%. Finally, their HFA Preferred program operates similarly to an FHA. However, they request as little as 3% down, charge a lower mortgage insurance cost per month, and allow buyers to cancel their mortgage insurance once certain requirements are met among other things.
Talk to your lender about what Fannie Mae can do for you.
Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty
