In the following few paragraphs, I’ll explain some of the industry terminology, some of which is above (Conforming loans, etc.) and give a few references to help explain what makes this a special situation for many home owners. Even for someone experienced, mistakes happen, and for the first time home buyers, knowing whom to trust can become a financial decision that directly affects both your financial well being (tolerances for risk and debt) and your wealth too.
What’s a Conforming Loan
A quick lesson in terms is in order here to appreciate what makes a Conforming loan, the significance of a conforming loan, etc. Please take a quick look at links in this section, as they are all relevant to our topic, and each educational in its own way. Each year, Fannie Mae, the Government Sponsored Enterprise (GSE) responsible for a substantial chunk of the American mortgage market sets a maximum loan amount that Conforms to it’s lending guidelines. Being a GSE means that Fannie Mae (and it’s smaller brother, Freddie Mac) are given purpose to enable more Americans to experience the joys (and sometimes woes) of home ownership, more specifically, by lending to the broader demographic of homeowners who are purchasing homes that are near the median home costs nationwide. For a little bit of background, and to see how unprecedented the current housing market activity has been over the course of the last year, take a look at this article from CNN. The summary is that Fannie Mae reads the same statistics that you’re reading ;), and derives a maximum loan amount that gives proper security to the institutions and investors that buy its Mortgage Backed Securities on the Secondary market”. These transactions increase the desirability of buying mortgage loans that was a largely local commodity in past decades, transforming blocks of mortgage loans into investment grade securities.
Bottom line (with some back of the hand calculations), Conforming Loan Amounts service people who earn approximately 70% to 300% of the national median income level. To create some perspective from the numbers, that means that Fannie Mae targets the roughly 110,000,000 working people in the United States who are members of the middle class