Freddie, Fannie, and Ginnie may be household names as the three major government-sponsored enterprises, yet they are often mistaken for one another.
As a real estate professional, when prospective home buyers come to you for advice about different government-backed loans and what they should expect during their application process, you need to be prepared.
One of the best investments and valuable real estate business ideas is to focus on client education. Be prepared to assist your real estate clients after reading about the differences, advantages, mortgage credit requirements, and more for each of the major mortgage companies.Fannie Mae
Fannie Mae
Fannie Mae is the common name for the Federal National Mortgage Association (FNMA). It is a government sponsored entity (GSE), publicly traded company that originated in 1938 by Congress during the Great Depression. Things to know about Fannie Mae:
- It purchases and guarantees mortgages via the secondary mortgage market
- It aims to make more affordable mortgages available to low- and middle-income buyers
- It is the largest backer of 30-year fixed rate mortgages
Guidelines
- Loan amount no greater than $453,100
- Apply for a loan from a Fannie Mae-approved lender
- Most large banks and mortgage providers are Fannie Mae-approved
- Approved lenders must meet high standards of credit quality
- Fannie Mae loans are conforming loans with lower interest rates than non-conforming or jumbo loans
Qualifications
- 2 years of income/employment verification needed to apply
- Reveal all credit obligations including mortgages, credit card accounts, co-signed loans, and child support
- Front-end debt-to-income ratio (DTI) of no more than 28%
Fixed-rate mortgages
- Minimum credit score of 620
- Minimum down payment is 5 percent
Adjustable-rate Mortgages
- Minimum credit score of 640
- Minimum down payment is 10 percent
There is a 3 percent down payment program for creditworthy borrowers who are specifically first-time homebuyers. Multi-Unit dwellings require higher down payments.
Benefits of Fannie Mae Loans
- Designed for homeowners
- Tighter margins when it comes to overall monthly debt obligations
Drawbacks of Fannie Mae Loans
- Corporations cannot apply
- The property must be a single family home, not a commercial property
- Higher credit standards
- The loan price can't exceed $453,100. The limits can change, so check for updates at https://www.fanniemae.com/singlefamily/loan-limits
Ginnie Mae
Ginnie Mae, the Government National Mortgage Association (GNMA) is a government-owned corporation that operates in the Department of Housing and Urban Development (HUD). Ginnie Mae guarantees timely payment of mortgage bonds that include federally insured or guaranteed loans and is backed by the full faith and credit of the U.S. government. Things to know about Ginnie Mae:
- It aims to increase the availability of funds for government mortgage loans and increase access to credit for first-time homeowners and low- and moderate-income borrowers
- Ginnie Mae approves private lenders to originate eligible loans, pool them into securities, and issue the Ginnie Mae mortgage-backed securities instruments
- It insures liquidity for US government-insured mortgages, including those insured by the Federal Housing Administration (FHA), Veterans Administration (VA), Rural Housing Service (RHS), and Public and Indian Housing (PIH)
- It guarantees the timely payment of principal and interest from approved issuers (such as mortgage bankers, savings and loans, and commercial banks) of qualifying loans, such as those issued by the FHA and RHA
Guidelines
- Loan amount no greater than $453,100
- Each mortgage must be insured or guaranteed under one of the following:
- the National Housing Act
- Title V of the Housing Act of 1949
- Servicemen’s Readjustment Act of 1944
- Chapter 37 of Title 38
- United States Code
- Section 184 of the Housing and Community Development Act of 1992
- 70.7 percent of Ginnie Mae services are to be first-time homebuyers
Qualifications
- No minimum credit requirement, but purchase borrowers have an average 690 credit score
- Individual lenders decide to whom to sell the security and then submit the documents to Ginnie Mae’s pool processing agent
- The lender is responsible for selling the securities and servicing the underlying mortgages. Issuers of Ginnie Mae securities are responsible for paying security holders monthly
- If the issuer is a Fannie Mae- or Freddie Mac-approved mortgage servicer, termination of its approved status by either agency shall be grounds for termination by Ginnie Mae
Benefits of Ginnie Mae
- Securities are guaranteed by the U.S. government with no default risk
- Ginnie Mae does not set credit or underwriting standards
- If a homeowner defaults on a loan underlying a Ginnie Mae security, Ginnie Mae makes the payments on the mortgage-backed securities until the underlying property is foreclosed
- Low-risk levels of Ginnie Mae financing mean low returns and that people investing in the funds have to contend with inflation risk
Drawbacks of Ginnie Mae
- Securities are subject to interest-rate and prepayment risk
Freddie Mac
Freddie Mac, the Federal Home Loan Mortgage Corporation (FHLMC), is a government-owned corporation that buys mortgages and packages them into mortgage-backed securities. Things to know about Freddie Mac:
- It makes more loans available to more new homeowners
- Freddie Mac buys mortgages from banks and other lenders
- It is a mortgage-backing firm
- It guarantees investors will receive an agreed-upon payment each month. The U.S. Treasury backs this guarantee
- FHLMC keeps some mortgages it buys as investments
Guidelines
- Loan amount no greater than $453,100
- Mortgages owned, guaranteed, or securitized by Freddie Mac are single-family 1- to 4- unit primary residences, including condos, cooperatives, eligible manufactured homes, and negotiated conforming jumbo mortgages
- FHA, VA, and RHS guaranteed mortgages are eligible, subject to the relevant agency guidelines
- Mortgages for properties that are abandoned, vacant, or condemned are not eligible
- Mortgages may be previously modified, but can only be modified once under the Home Affordable Modification Program (HAMP)
Qualifications
- Submitted by an approved Freddie Mac supplier or servicer
- Minimum Indicator Score of 620 unless otherwise specified in the Guide.
- Maximum debt-to-income ratio of 45 percent for manually underwritten mortgages
Benefits of Freddie Mac
- Freddie Mac loans are conforming loans with lower interest rates
- Secondary financing options are available
- Obtain the security of a stable monthly payment throughout the life of the mortgage
- 15- and 20-year fixed-rate mortgages can be leveraged to build equity more quickly
- Lower monthly payments are possible with a 30- year fixed-rate mortgage.
- Choose from a variety of home financing options, for a variety of property types, to meet individual financial circumstances
- Lower down payments are possible with Home Possible Mortgages
Drawbacks of Freddie Mac
- Super conforming loans are available for higher cost locations
- Underwriting is automated using the Loan Prospector
Next Steps
With knowledge about Freddie, Fannie, and Ginnie in your back pocket, you can begin advising clients on the possibilities they have to find the best home mortgage. No matter the cost of their dream home, each government backed loan requires a client’s credit score and proof of income to apply. Luckily, credit scores can be improved and credit repair services are a great addition to a real estate business.
With minimal training, you can become a credit specialist who is able to generate more real estate leads with a credit repair offering, ease the financial burden on prospective home buyers, and generate more profit for your real estate business.
Read more about expanding your real estate business.
