FHA requires borrowers to have at least a credit score to be eligible. Borrowers with at least a credit score. Fannie Mae is a publicly-traded organization that is managed by the US government. It buys loans from various lenders. This allows lenders to free up their assets so that they can continue to write more mortgages. Some borrowers may be able to qualify for both types of mortgages.
This makes the FHA program quite attractive to lower-income borrowers. It also is very attractive to first-time house buyers who do not have equity in another property to use for their down payment. FHA first time loan programs have easy credit standards and realistic down-payment requirements for qualified borrowers.
FHA will take a close look at your total amount of debt compared to your income. It wants to ensure you have enough income to pay your mortgage and your other financial obligations. This is the front-end DTI. It refers to all of your monthly debt obligations, plus your total mortgage payment. People with a higher level of debt are more likely to default. FHA lending also allows you to get your entire down payment from a relative or close friend.
If you default on the loan and your house isn't worth enough to fully repay the debt through a foreclosure sale, the FHA will compensate the lender for the loss. If you're behind in your mortgage payments on an FHA-insured loan, you get access to special loss mitigation options that specifically apply to borrowers with FHA-insured loans. Because the loan is insured, the lender can offer you good terms, including a low down payment—as low as 3. This type of loan is often easier to qualify for than a conventional mortgage, and anyone can apply.
But FHA-insured loans have a maximum loan limit that varies depending on the average cost of housing in a given region. To learn more about FHA loan limits, visit the U. Most FHA-insured loans get approved by an automated system, while a few are referred to the lenders who manually review borrowers' applications based on FHA guidelines.
As of March , however, the agency tightened the underwriting requirements for FHA-insured loans; too many risky loans were being made. Now, around 40,, loans per year—four to five percent of the total mortgages that the FHA insures on an annual basis—which would have previously been approved automatically will now be put through a more rigorous manual underwriting review, according to FHA officials.
The premiums that borrowers pay contribute to the Mutual Mortgage Insurance Fund. FHA draws from this fund to pay lenders' claims when borrowers default.
Again, as the name implies, a VA-guaranteed loan is a loan that the U. Department of Veterans Affairs VA guarantees. This type of loan is only available to certain borrowers through VA-approved lenders. The guarantee means that the lender is protected against loss if the borrower fails to repay the loan. To learn the specific eligibility requirements for a VA-guaranteed loan, go to the VA website. Fannie Mae and Freddie Mac are the financial fuel that power the mortgage loan industry.
Despite the government-sounding titles, these organizations are actually shareholder-owned, for-profit companies that influence the issuance of many of America's home loans. Or more accurately, were shareholder-controlled companies — until the government took over operation of the firms following the mortgage crisis in Fannie and Freddie shareholders are suing to regain control.
Regardless of their ownership structure, Fannie and Freddie still drive many of the underwriting decisions lenders make, and knowing more about how they work may be helpful when navigating the mortgage application process.
That simply means both companies were created by Congress and authorized to perform important functions on the government's behalf: to provide "liquidity, stability and affordability to the mortgage market," the Federal Housing Finance Agency says. Fannie and Freddie buy about half of all the mortgage loans that lenders make.
That provides lenders with the capital to make more loans. Because lenders want to sell their loans to the GSEs, they structure mortgages to Fannie and Freddie standards. Many of the mortgages that Fannie and Freddie buy are then assembled and sold as mortgage-backed securities into the bond market. When shopping for a loan, FHA loans benefit borrowers with an overall lower credit requirement and seller credits to assist with the down payment.
Fannie Mae has much higher credit standards but allows tighter margins when it comes to overall monthly debt obligations. Before becoming a full-time writer, she worked for major financial institutions such as Wells Fargo and State Farm.
She currently lives in her home state of Hawaii with her active son and lazy dog. By Kimberlee Leonard Updated July 19, Related Articles.
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