Qualification Requirements by Market Segment

Currently the home loan market has 5 market segments that differ in their underwriting requirements, pricing or both. The first two segments are conforming loans, meaning that they may be sold to Fannie Mae or Freddie Mac, and therefore must adhere to the standards set by those agencies. The conforming jumbo segment, which is a temporary response to the financial crisis, has the same underwriting rules as the standard segment, but prices are a little higher.

FHA loans also have standard and jumbo segments. The underwriting rules are the same for both and are much less restrictive than the rules applicable to the other segments. FHA jumbos are likely to be priced a little higher than FHA standard, and lenders typically set qualification rules on FHA jumbos that are more stringent than those of FHA.

Loans larger than the conforming jumbo are non-conforming jumbos that have more restrictive underwriting rules and are priced significantly higher. Before the crisis, many of these loans were securitized, which kept rates down, but today they end up in lender portfolios. This is the only segment without Federal government involvement.

The qualification table distinguishes only 3 segments: conforming, FHA and non-conforming.

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