Finance
What is a 'conforming loan' in the U.S. mortgage market?
AA loan that conforms to FHA guidelines
BA loan that meets Fannie Mae/Freddie Mac guidelines for purchase✓ Correct
CA loan issued by a state-chartered bank
DA loan with an interest rate at or below the prime rate
Explanation
A conforming loan meets the underwriting guidelines and loan limits established by Fannie Mae and Freddie Mac, allowing it to be sold in the secondary mortgage market.
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Key Terms to Know
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.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
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.
Math Concepts
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