Checking The Pulse Of The Kansas City Real Estate Market
Neither Fannie Mae or FHA provide borrowers home loans. Rather than providing loans, both institutions BACK the loans that are being made by local mortgage lenders. So, in other words, they’re what’s making the loans possible. In the future, when you hear the words “Fannie Mae”, you should think conventional loans. When you hear the term “FHA”, you should think government backed loan. FHA loans don’t have the exotic loan type options available on Fannie Mae backed loans (i.e. ARMS) but what they do have is less restrictive guidelines for qualifying for the loan. For this reason, FHA loans have more costly up-front fees than your typical Fannie Mae underwritten convention loan.
Fannie Mae is an investor who buys the notes from the mortgage lenders making the loans. This minimizes the risk the lender has in providing a loan, as long as the mortgage lender runs the borrower through the Fannie Mae underwriting system. If the borrower’s debt-to-income, credit scores and the property in question all meet Fannie Mae’s guidelines, the borrower is on their way… assuming they have a minimum 5% down payment and at least a 720 credit score. For borrowers with 800 credit scores and a 20% down payment, I can’t think of any reason they’d want to go the FHA route.
The FHA loan program is one where the loans are being guaranteed by our government. The closing costs are higher on a FHA loan, but there’s plenty of reasons a buyer may choose to go this route. One of the big reasons is because FHA loans only require a 3.5% down payment and an upper 500’s credit score. And, unlike Fannie Mae’s cut and dried underwriting process, FHA may take a deeper look into your circumstances when deciding whether you qualify for a FHA loan. Also, many borrowers who have a foreclosure or bankruptcy on their record can qualify for a FHA loan quicker than they’d qualify for a Fannie Mae backed loan. Another advantage of FHA loans is that a borrowers relatives can gift them the money used for the down payment in purchasing the home.
Posted by Jason A. Brown