FinanceIntermediateCalifornia Exam

The conforming loan limit determines which loans can be:

AInsured by the FHA, as typically calculated in residential loan underwriting

BGuaranteed by the VA, consistent with conventional financing terms

CPurchased by Fannie Mae and Freddie Mac on the secondary marketCorrect

DOriginated by state-chartered banks in California, per standard amortization and lending convention

Why Purchased by Fannie Mae and Freddie Mac on the secondary market Is Correct

Answer C: Purchased by Fannie Mae and Freddie Mac on the secondary market

Conforming loan limits set the maximum loan amount that Fannie Mae and Freddie Mac can purchase. Loans above this limit are 'jumbo' loans and typically carry higher rates and stricter underwriting standards since they cannot be sold to these GSEs.

Exam Tip: Finance

Finance questions often involve calculations. Master the T-bar method, understand the difference between conventional and government-backed loans, and know key ratios like LTV and DTI.

Key Finance Terms in This Question

Amortization

The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.

People Also Study

Key Terms to Know

Loan-to-Value Ratio (LTV)

The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.

Discount Points

Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.

Pre-Approval

A lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.

Amortization

The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.

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