Fannie Mae home loans as well as Freddie Mac were both founded by Congress in an attempt to add money to the housing market. Both of these companies give lenders the opportunity to get money for their mortgage investments via securities. Also, these companies are both government sponsored enterprises (GSEs).
Fannie Mae and Freddie Mac purchase mortgages from lenders. They then put them into packages and turn around and sell them to investors. What this does is essentially add liquidity to the market. Fannie Mae home loans mostly buy mortgages. Freddie Mac makes guarantees on loans and gets money from their fees. They arenít the ones who directly give out the loans, but they are the insurance programs that make the loans more cost effective. They both operate only in the United States.
You will begin to see a big difference in the two companies if you own multiple properties. As a borrower, Freddie Mac will only allow you to have up to four units. With Fannie Mae home loans you can have up to ten properties.
A second major difference between the two is that they each require you to have different amounts of money readily available at the time the financing is requested. With Fannie Mae you just need two months worth on hand. However, with Freddie Mac you have to have at least six months worth readily available. For those people who are purchasing investment properties, this can make or break their decision.
The two companies also differ when it comes to down payments. You can put down just three percent with Fannie Mae home loans. However, this is not the case at all with Freddie Mac. You cannot take out a loan with them for anything that goes above 95 loan to value. This essentially means that you will need to have at least 5 for your down payment. Both companies have special programs which can significantly lower the down payment in the event that the borrower meets the loan criteria.
The reason why Freddie Mac and Fannie Mae home loans have rules is so that home loans will be more affordable for people. These companies are simply meant to put more money into the housing market, period. They insure the loans that they purchase from the banks before they resell them out on the market.
Do not get these companies mixed up with the Federal Housing Administration. What they offer is totally different. The FHA actually directly offers the loans to people, while Fannie Mae and Freddie Mac do not. You can still be considered if you have a tarnished credit history, but you should expect to make a big down payment. You will also be charged a higher interest rate if you have a bad credit score.
After coming to the conclusion that you want to buy a house, it will be absolutely vital that you come to terms with your financing options. Most lenders will be happy to help you if you still do not understand the difference between Freddie Mac and Fannie Mae home loans.