Finance
What is the conforming loan limit's significance in mortgage lending?
AIt sets the maximum interest rate for conventional loans
BLoans at or below this limit can be purchased by Fannie Mae and Freddie Mac✓ Correct
CIt determines the maximum LTV ratio
DIt limits the number of loans a borrower can have
Explanation
The conforming loan limit is the maximum loan amount eligible for purchase by Fannie Mae and Freddie Mac in the secondary market. Loans exceeding this limit are jumbo loans with different underwriting standards.
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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 PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Math Concepts
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