Standardize Loan Requirements

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FLORIDA REAL ESTATE SALES ASSOCIATE COURSE

Types of mortgages

Section 55 of 72

To sell loans on the secondary market, lenders must follow strict, uniform rules regarding credit scores, debt ratios, and down payments. Loans that meet these standardized guidelines are called "conforming loans" because they conform to the requirements of buyers like Fannie Mae and Freddie Mac. This standardization makes loans easier to bundle and sell. Conversely, if a lender creates a loan that does not meet these standards (perhaps for a unique property or a borrower with complex income), they usually cannot sell it. These non-conforming loans must be held in the lender's own investment portfolio, making the lender a "portfolio lender" for those specific assets.